# Best place for pensioners to invest?



## Brendan Burgess (29 Aug 2001)

Sir Ivor said in another post:

_ My second, quite separate, argument is a utility curve based one. I think we can both agree (in my case, for the sake of argument) that equities tend to come out on top over the longer term but that there is a reasonable risk of say a 25% fall over the medium term. Again, for the sake of argument, I am prepared to concede that the upside potential is greater than the downside risk from a purely statistical viewpoint. Clearly from the vantage point of your utility curve you consider this a good bet. 

But what about a pensioner considering her life's savings? There is a chapter in the "Book" which challenges pensioners thus:

Quote:
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 DON'T BE AFRAID OF THE STOCKMARKET
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or, in the vernacular "Don't be wimps".

I think this "advice" verges on the irresponsible. For many pensioners the loss of 25% of their life savings over 5 years would be crushing. No matter what way you look at it they are gambling their money at least in the medium term, both of us effectively agree on that, the difference between us is that you believe they are getting very good odds. I contend that many pensioners are not interested in very good odds on their life savings. That was the point of the simplified example of the heavily biased toss of a coin. Pensioners, and others, are simply not prepared to toss a coin with 25% of their investment even if the coin is heavily weighted to come down strongly in their favour. _


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## Brendan Burgess (10 Oct 2001)

*Re: Advice to pensioners to invest in the stockmarket*

Hi Sir Ivor

Let me describe the problems which I am trying to address. I know many people who retired 10 and 20 years ago who put their money in deposits. They have "lived off their interest" and have left their capital intact. But of course their capital has lost 50% of its real value. Many pensioners are living off deposit rates of 3% on capital sums which have been much reduced. 

I do appreciate that there is significant short term risk in investing in the stockmarket. And I have seen pensioners lose 25% of their capital in the short term and they were not happy. But those who held their nerve have all bounced back and are well ahead of their fellow pensioners who kept their money in deposits. They are rich while their deposit holding fellow pensioners are poor.  Sure they had a bumpier ride along the way. 

My view is that if a pensioner keeps their money in a deposit account, they will be slowly but surely, impoverished over the coming years. If they put it in the stockmarket, they may lose 25% of the value of their investment temporarily, but will be much better off in the longer term. 

I do appreciate that the idea of investing in shares is often too much for an older person who has not done so before. And I know most people will ignore my advice and leave the money on deposit. But I have suggested to them to put at least some of it in equities or to consider the Standard Life with profits bond.

Someone who retires at 65 has a life expectancy of about 20 years. That requires long term planning. 

Can I turn the question around ?

How would you advise the following married couple ?

They are both aged 65 and in good health.
They own their own house and have paid off their mortgage. 
He gets the contributory old age pension of £180 per week.
In addition, he has an occupational pension of £10,000 a year which is indexing at 3% which will cease on his death.
They need about £20,000 net a  year to live comfortably.
He has a lump sum of £100,000. 


Would your advice be any different if the circumstances were the same except that he has no occupational pension ?

Brendan


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