Can you be a long-term investor at age 71?
Emmett L. Brown Jr., the former chief executive officer of Richland State Bank in Rayville, La., thinks so. He's 71 and he has taken the market's recent downturn as a buying opportunity, snapping up a hundred shares of Smith & Wesson Holding Corp. recently when the stock hit a new low.
The market's agitation "may not be over tonight," he says, "but it will pass."
He and investing experts say retirees with enough money and proper planning can calmly ride out the market's worst days. With life expectancy reaching the late 80s for some groups, retirees have to think long-term, but they also need to hold more cash than young workers do.
Advice from the pros:
• Retirees should have one or two years' worth of expenses in cash set aside, so if stocks go south, they'll be able to pay their utility bills. Cash not only earns interest, it allows you some emotional detachment from daily market swings.
Paul Santucci, an Ameriprise financial planner based in Rye Brook, N.Y., said he hears from people who think, "We've had five great years; all we need is five more and I'm in good shape." He says they should think instead about what five down years will do to them, or what would happen if they're forced to sell shares in a down market.
• Keep another four-plus years in fixed-income investments, such as certificates of deposit with expirations that "ladder," coming due in increments over a period of time, to further insulate you from market swings.
"The reality is, by the time you get through your short- and intermediate-term money, the markets will, in all likelihood, if history is a guide, be a lot higher than it is today," Santucci said.
• Rethink how aggressive you want your investments to be.
"If you couldn't sleep Monday night because of the global meltdown, if you felt nauseated when the market opened down 400 (points) Tuesday, you should reassess your tolerance for volatility," said June Walbert, a financial planner with USAA.
• Think in increments. A rule is that retirees can withdraw 4 percent of their total investments each year. As they spend cash, they should rebalance their portfolios so they're not too heavily weighted in stock.
Even without withdrawals, rebalancing should be a quarterly activity. Stocks' run-up over the past three years meant the stock portion of many investors' portfolios ballooned. Investors who rebalanced during the run aren't hurting as badly as others now.
• Evaluate your investment expenses. If you're paying $6,000 or $7,000 to an investment adviser, ask yourself if you're getting value for that money, said Walbert. Otherwise, that's money you could save.
Harold Petersen, a 74-year-old full-time economics professor at Boston College who advises the school's investment club, had one more bit of wisdom.
"I wouldn't tell anyone what to do," Petersen said. "If they ask what I'm doing, I'm buying all the way down. Of course I'm losing money. I am thinking stocks look a lot more reasonable than they did."