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April 17th, 2014

UTC Investment Segment: Investing after age 50


UTC Investment Segment: Investing after age 50

For those over 50 years of age, starting to invest when retirement is rapidly approaching can appear to be a daunting task. The reality is that a growing number of people are putting planning for retirement on hold while their portfolio is not aligned to their changing needs.  The risk is that the longer you wait, the riskier retirement becomes and the more devastating the impact.

Despite those challenges all is not necessarily lost. For one thing, you may still have ten to fifteen years left in the workplace at your peak earning potential. For another thing, you may have the capability to monetize your skills and capabilities even after retirement. What you need therefore is a strategy tailored to suit your needs.  Investing over 50 may require you to adjust your portfolio and savings because preparing for retirement requires a candid assessment of your financial habits. If you have not adequately saved thus far, you will need to increase your savings rate and maintain sufficient cash reserves in order that unexpected emergencies do not disrupt your long-term investment plan.

In this regard, evaluating what your spending needs are likely to be in retirement and the amount of savings you will be required to meet them is important to identifying what action you may need to take.  If you have not rebalanced your investment portfolio for several years, you may find it desirable to do so now.

At age 50 and beyond, a good investment strategy needs to take into account an investor’s specific retirement needs. It is a good idea for a professional financial advisor, such as those at the UTC’s Financial Advisory and Wealth Management  Department, to sit down with you and help evaluate your retirement goals.  This is also a good time to assess your risk tolerance and factor in variables such as inflation, interest rates and prevailing market returns.

Once the goals are identified, an asset allocation-focused investment strategy that gives the optimal blend of risk and reward should be determined. The key here is for investors to have the appropriate mix of investments based on age, risk appetite and other factors.

A common habit among employed persons is to rely on a company’s pension plan to provide for retirement. More often than not, this proves to be inadequate and thus should be supplemented by a personal pension plan. Personal pension plans such as UTC’s Pension Plus, the Individual Retirement Unit Account (IRUA) and the Universal Retirement Fund offer guaranteed income upon retirement for life. This strengthens your retirement planning by providing a floor to your retirement income, thereby helping to cope with some of the uncertainties that may occur.

Like investing at younger ages, diversification becomes paramount when an investor crosses 50. While this strategy is important for all investors, it is particularly crucial for those over 50 because they have a shorter investment horizon than those in their 30s. The single best way for investors to protect themselves from risk is to spread their portfolio across several different investments. Such asset class diversification allows investors to limit their risks by reducing the effect of a possible decline in the value of one any asset class or security, so if one asset class or security underperforms the others can offset the impact.

Another downside to investing in your 50s is inflation which reduces the value of your dollar over time, and as a result your retirement assets must grow at least as fast as inflation in order to keep up.  Owning company stocks, called equity investments, is a great way for all investors, particularly those approaching retirement, to beat inflation while benefiting from  both capital gains and dividend income over the long term.

At the Unit Trust Corporation, the Growth and Income Fund (GIF) is invested in shares of local companies trading on the stock exchange, government and government guaranteed bonds, short term securities and foreign equities, and is specifically designed as an efficient investment vehicle that  buffers inflation and provides the investor with the potential to earn capital growth and dividend income.

As retirement approaches, the allocation to equities in one’s portfolio should be reduced as you may want to preserve your wealth and reduce exposure to the volatility of stocks. Beyond 50, investors may want to manage risk by investing in fixed income instruments such as Treasury Bills (T-Bills) and high-quality bonds via bond or income mutual funds, such as the UTC’s Global Bond Fund and UTC’s US$ Income Fund.  A bond fund such as UTC’s Global Bond Fund can generate a relatively high level of income as well as potential for capital appreciation.

It is no secret that financial security and knowledge go hand in hand, and this holds true for those in even in their  50s. As a result, a judicious mixture of mutual funds, equity, fixed income investments and pension schemes will enable you to build a strong retirement portfolio that will provide future earnings and allow you to accomplish your goals with peace of mind.