Business & Real Estate

Nest Egg Briefs: What investment mistake did 30% of seniors make this year?

According to data from Fidelity Investments, more than 30% of investors ages 65 and older sold all their equity holdings this year. By comparison, less than 20% of all investors made the same mistake.

Although the data doesn’t pinpoint exactly when most of the transactions occurred, it’s likely it was sometime when the market was tanking earlier this spring.

What was the consequence of such a decision? The stock market has since bounced back 40% from its depths, with the NASDAQ setting new record highs. Many of those seniors will have effectively locked in huge losses, and this during a phase of their lives when a large number of them presumably have to rely on their invested savings to live. The saddest part is that it could easily have been avoided.

On the surface, fear was undoubtedly the reason these investors unloaded all of their stocks. That fear is quite understandable, as three months ago we were facing a health and economic Armageddon not seen in a century. And we may still be; the jury remains out on the ultimate economic and market damage. But there could be a deeper underlying reason: Perhaps they didn’t have a retirement plan.

How would that have helped? A retirement plan is like a road map of your future path in life. A goal-based plan in particular identifies, prioritizes and determines the funding needed for all of the things on your bucket list as well as those – such as health care – you need to be addressing just to stay alive and healthy.

A good retirement plan helps you determine how much you need to grow your savings, which in turn helps you figure out the optimal strategy to follow for your investments. Once you have both in place, and have allocated your savings across the various investment asset classes available to you, there’s no need to fear market swings. Rather than reacting, all you need to do is proactively rebalance your investments periodically and allow the market to work for you. It may be down at the moment, but surely you weren’t planning to spend all your money this year.

There are additional techniques for maximizing after-tax returns, even during a downturn. Many you can do yourself. Most importantly, having a plan for your future and an investment strategy that optimally balances the investment risk with the needed growth should help you avoid the fear that causes you to make financial mistakes – not to mention the stress on your mind and body.

We cannot know how long it will take to control COVID-19, nor when the economy will fully recover from the shutdowns. Regardless, things will get back to normal at some point. And if you’re still worried that stock prices won’t go up for years, consider this: According to LPL Financial, the amount of cash held in money market funds right now has reached nearly $5 trillion. That’s nearly 25% higher than at the peak of the recession of 2008. Imagine what will happen to equity prices when those investors use all that cash to start buying stocks again.

Los Altos resident Artie Green is a Certified Financial Planner and principal at Cognizant Wealth Advisors. For more information, email This email address is being protected from spambots. You need JavaScript enabled to view it. or visit cognizantwealth.com.

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