Key Post "Should the elderly be less conservative investors?"

[PMU]

Most older people will not invest in equities, although it's the correct thing to do. Advisers should advise them of the right thing to do, even if the client decides against it. I would be happy to take on any bet with a positive expectation which risks less than say 1% of my wealth. My granny might not be prepared to do that, but she should do so. Brendan

If you are a retiree and are investing only 1% of your wealth, possibly, but should a retiree, who has never invested in the stockmarket before, make a significant investment, when he / she retires?

So, if you invest in the stock market and suffer a significant loss, how long will it take for the market in today's world to give you positive return? If you are investing for a period of 4 years, how likely is it you will be in 'negative equity' if the market suffers a significant loss in the year you invest and how long will it take to regain your loss? (By a significant loss, I mean a loss of more than two standard deviations from the mean, as 95% of returns should lie within 2 SDs). We are looking at potentially worst case scenarios here.

In the past 40 years, the S&P has suffered 3 significant losses. The probability of a year having negative returns is 21%, and there were 3 years with significant negative returns. These were in 1974 (-19.72%); 2002 (-23.37%) and 2008 (-34.49%). If you invested USDs in the S&P in any of these years how long would it have taken for the market to give you a positive return, i.e. to recover your loss? For 1974 and 2002 it was 4 years in each case. But for 2008 it was 7 years. Personally, I think these are reasonable periods of 'negative equity' if you are investing for the long term. However, losses can be cumulative and from 2000 there were three consecutive negative return years. If you had invested in 2000 it took 15 years to get a positive return on your investment. Also, if you were an EUR/IEP investor, you would have to factor currency risk into these returns.

If you look at the Eurostoxx50, in the past 30 years, the probability of a year having is negative return is 29% and the index also suffered 3 significant losses. These were in 1987 (-28.05%); 2002 (-37.3%) and 2008 (-44.28%). If you invested in any of these years how long would it have taken for the market to give you a positive return? For 1987 and 2002 it was 4 years and 6 years respectively. Again this seems a reasonable period to carry a loss, for a long term investor. But if you invested in 2008 you still have a negative return, and to end 2016, are down 26%. If you're a pensioner this is a disastrous outcome; if you were 65 when you invested in 2008 you have suffered a significant loss, except now you are 73 and have a life expectance of 8 more years. The Eurostoxx50 also suffered 3 consecutive years of negative returns from 2000, and if you had invested in 2000 you still have a negative return. And if you're a retiree who invested in 2000, you've just reached your life expectancy.

So would you invest for a duration of 4 years considering the behaviour of stock markets in today's world? Perhaps depending on your risk profile; but as a retiree, a significant allocation would seem foolhardy (unless it is intended to leave it as a bequest).

 

[monagt]

If you are a retiree and are investing only 1% of your wealth, possibly, but should a retiree, who has never invested in the stockmarket before, make a significant investment, when he / she retires?
Would you invest for a duration of 4 years considering the behaviour of stock markets in today's world? Perhaps depending on your risk profile; but as a retiree, a significant allocation would seem foolhardy (unless it is intended to leave it as a bequest).

So a Retiree should go >1% only to Cash, Government Bonds and Saving Certs, Safe Bank Deposits.(Rabo now 0%).....and hope he/she does not live too long!

Is that what this thread is saying?

 

[galway_blow_in]

If you are a retiree and are investing only 1% of your wealth, possibly, but should a retiree, who has never invested in the stockmarket before, make a significant investment, when he / she retires?

So, if you invest in the stock market and suffer a significant loss, how long will it take for the market in today's world to give you positive return? If you are investing for a period of 4 years, how likely is it you will be in 'negative equity' if the market suffers a significant loss in the year you invest and how long will it take to regain your loss? (By a significant loss, I mean a loss of more than two standard deviations from the mean, as 95% of returns should lie within 2 SDs). We are looking at potentially worst case scenarios here.

In the past 40 years, the S&P has suffered 3 significant losses. The probability of a year having negative returns is 21%, and there were 3 years with significant negative returns. These were in 1974 (-19.72%); 2002 (-23.37%) and 2008 (-34.49%). If you invested USDs in the S&P in any of these years how long would it have taken for the market to give you a positive return, i.e. to recover your loss? For 1974 and 2002 it was 4 years in each case. But for 2008 it was 7 years. Personally, I think these are reasonable periods of 'negative equity' if you are investing for the long term. However, losses can be cumulative and from 2000 there were three consecutive negative return years. If you had invested in 2000 it took 15 years to get a positive return on your investment. Also, if you were an EUR/IEP investor, you would have to factor currency risk into these returns.

If you look at the Eurostoxx50, in the past 30 years, the probability of a year having is negative return is 29% and the index also suffered 3 significant losses. These were in 1987 (-28.05%); 2002 (-37.3%) and 2008 (-44.28%). If you invested in any of these years how long would it have taken for the market to give you a positive return? For 1987 and 2002 it was 4 years and 6 years respectively. Again this seems a reasonable period to carry a loss, for a long term investor. But if you invested in 2008 you still have a negative return, and to end 2016, are down 26%. If you're a pensioner this is a disastrous outcome; if you were 65 when you invested in 2008 you have suffered a significant loss, except now you are 73 and have a life expectance of 8 more years. The Eurostoxx50 also suffered 3 consecutive years of negative returns from 2000, and if you had invested in 2000 you still have a negative return. And if you're a retiree who invested in 2000, you've just reached your life expectancy.

So would you invest for a duration of 4 years considering the behaviour of stock markets in today's world? Perhaps depending on your risk profile; but as a retiree, a significant allocation would seem foolhardy (unless it is intended to leave it as a bequest).

euro stoxx 50 is not well diversified as its too exposed to financials and energy which have performed horribly this past ten years , i dont know many pension funds which would use it , the s + p only took until around may of 2013 to get past where it peaked in november 2007 , most pension funds have more than recovered their losses since 2008 , many are up 50% and more