31st January 2022
In this weeks’ (really) short piece I’m going to share with you a couple of thoughts about investing in later life; for those that may be in the final decade or two. Key things covered this week:
If you have excess cash to invest in your last decade or two, say in your 70’s or 80’s – is it to be considered long or short term!? Given that none of us know whether we have 5 days or 5 decades left in life, it’s impossible to know whether it will be long or short term of course! However, if you have money that you have no likely need nor want to use before you do die – it really ought to be considered as a long term investment. Indeed there is no scenario I would ever consider a family’s wealth as ‘short-term’.
People in their final decades of life really should see themselves as the safe-keepers of their children’s and grandchildren’s future wealth.
The more I work with people who are in that stage of life, the more I am convinced that there comes a point in everyone’s life when they flick the switch from ‘this is money I may need so I’m looking after it for us’, to ‘I’ll never likely use this money so I want to protect and grow it for the kids and grand-kids’.
Of course, getting to this mindset and this financial position is usually a result of many decades of prudent earning, savings, investing and spending. We all therefore won’t make it.
If you are in your 70’s now and you started saving 40 years or so ago, the Global Equity values are up about 40 times. Of course, it halved three times during this period, struck by temporary market blips. You have observed that, while scary, all equity market declines are blips when framed against your lifetime of investing.
40 years from now, your children who are currently in their 30’s, will be in their 70’s. Do you expect the same Equity Values to be up another 40 times or so? Indeed, one would have to explain to you how it would not be! If you do not wholeheartedly believe that, then why are you invested in Equity at all!?
With this perspective, regardless of one’s age, everyone’s investing time horizon ought to be forever. And forever can only logically mean long-term for most of us. If you are indeed going to invest ‘forever’, be sure not to walk blindly into the emotional & financial trap that is ‘middle of the road’ investing. Read Blog 183 for more. Investing in later life is simple but not necessarily easy – irrespective of which level of risk you take – so do it right, or don’t bother.
The only argument that can be made for investing in after life ‘conservatively’ is the potential impact if a market decline coincides with your death, and subsequent sale of the underlying assets, and inheritance to your beneficiaries. It is a fear of this that causes those unscrupulous advisors to lazily dump their clients into middle-of the road or conservative funds – where they’ll collect their commission fee knowing in their hearts that the client will be lucky to cover fees and inflation if things go well, and will still suffer loss if things don’t go well. You can’t have your cake and eat it as an investor so don’t let anyone tell you that you can get excess returns with no risk.
Speaking of risk, many people fear that markets will only head down-hill when they hear the dramatic words of ‘all-time highs’. There are this is understandable but senseless and illogical. People start talking about 2007 again, and the Global Financial Crisis being on our door-step. Corrections of course are always ‘just around the corner’ but don’t confuse that with the end of the world – or the end of Global Equities (which they’ve been spouting since the 19070’s!). Just a couple of juicy facts to help assuage you, if you even needed it, of the S&P, which for many people with less diversified portfolios makes up over half of their portfolios!:
Estimates of 2022 earnings gains, posted by S&P Dow Jones Indices, noted very concisely in Bob Carey’s Quarterly Market Overview recently:
S&P 500 Index: 2022 earnings up 9%
S&P MidCap 400 Index: up 17.6%
S&P SmallCap 600 Index: up 30.7%
S&P 500 companies had c$2.4 trillion in cash and equivalents at the end of 3Q21, up from $1.6 trillion in 3Q19; and their ratio of debt to Ebitda (earnings before interest, taxes, depreciation and amortization) was at a record low, of 1 per Bloomberg, vs. 4 in 2007, just before the subprime mortgage crisis got in gear, and 3.88 in 1999, going into the implosion of the dot-com bubble.
JP Morgan’s wonderful ‘Guide To The Markets’ stated that US household net worth was $150 trillion at end of 2021, more than double what it was in 2007 before the bust. More notably, the ratio of debt repayments to disposable income was just 9%, which is close to a 40-year low.
None of this is prediction – and even stating it is veering very-much off-course for me – but I do so in the hope that it helps you recognise how very positive things are, and will no doubt be for the future generations of long-term, patient and stoic equity investors.
Much is spoken about ‘lifestyling’ and tapering your exposure to equity and ‘risk’ as you age – vast majority of this is pure marketing nonsense as opposed to strategies to support your family’s wealth. See Blog 53 from a few years ago for more on Lifestyling and the potential outcomes for investors.
You may not know it yet, but as a long term equity investor you should be praying to die at a time that coincides with the biggest market crash of your lifetime!
‘Has he too lost his marbles’ I hear you ask!?
That outcome would reduce the amount of Inheritance Tax that your kids will pay, and maximise the probability that their newly-inherited wealth will soon soar. Assuming your dependents do the only logical thing, and reinvest it as soon at they get it in the same diversified Global Equities that you were in before you got up and left them! If you think equity values are high today, wait till you see them in 40 years!
Keep it in the family!
Warning: The value of your investments can and will go up and down, and you could lose money in any investment. Only use a trusted advisor and we suggest only investing in regulated investments – otherwise the probability of loss increases dramatically. See Disclaimer here.
If you seek a source of trusted, truly independent expertise on your investments, pensions & financial life, we can help.