Is it wise to continue an aggressive investing strategy as a 61-year-old with a considerable amount of assets and money saved?
I have an IRA account with approximately $150,000, a 401(k) with approximately $30,000, and a mutual fund with approximately $25,000. I own a rental property, two homes, and my spouse plans to work 10 years beyond my retirement. I plan on retiring at age 67. I invest aggressively, mostly in stocks, with my retirement accounts. Is an aggressive investing strategy a good approach, considering my financial situation and age?
Congratulations on the money you have saved! If there is no debt on the rental homes, you have a great basket of assets amassed. I do not know your current income and spending habits, but your potential largest problem in life longevity.
We can be systematic about answering your question from a longevity standpoint. If you are a heterosexual couple, there is a 50% chance that one of you will be alive at age 90 and a 20% chance that one of you will be living at age 95 (The percentages would be lower for a homosexual male couple and higher for a homosexual female couple.) Thus, you have to plan for at least another 30 years. Over every 30 year period since 1912 (which includes many peiods encompassing the Great Depression), the range of average annual returns is 4% to 9%. Since it is risky to try to get 4%+ from bonds in the current environment, you should own stocks to the extent that you can stand a potential 50% drop in the stock market such as we saw in the 2007 to 2009 bear market. If you believe you would be tempted to sell out of all stocks if the market dropped greater than 33%, you should own 66% stocks and 34% bonds. Most importantly, you need to stay invested in your stock holdings through thick or thin.
There are investment mangers that offer strategies that attempt to minimize downside risk while participating in much of the upside movement. With those type of strategies, it is likely you can have more invested in stocks at any level of risk tolerance than in a vanilla index fund.
The biggest consideration most planners use to determine how much risk to take is how long it will be before you need to use that pool of money. That is not necessarily your retirement age. In your case, if you plan to work another 6 years and your wife's income plus rental income will cover the household bills, your time horizon is 17 years. That is a long time and you can still have an aggressive portfolio (assuming you have the stomach for it during stock market declines).
Even an aggressive growth portfolio should have 15% bonds at a minimum to give you diversification and cushion during a recession.
Hope that helps!
Traditionally speaking, the closer you get to retirement, the more conservative your portfolio should become. However, every person's situation is different. What is the outlook for your sustainability in retirement? With your current level of assets and expected guaranteed income, will you be able to maintain your lifestyle and keep up with inflation? If not, then chances are you need to achieve some further growth out of your assets in order to help get you there. A predominantly aggressive portfolio, however, should generally be utilized when your time horizon is 10+ years. This does not mean an aggressive allocation can't be used at your age, though. It really depends on what the overall picture looks like. If that's everything you have and you are retiring in the next 6 years, you could be exposing yourself to excessive risk. I'd recommend having a financial plan done. A planner will help you determine if you are properly allocated to match your existing and expected financial goals and needs, especially moving into retirement.
Typically, the measurement of a properly diversified portfolio is to subtract your age by 100% to come up with the % of your portfolio that should include equities. We have been in a somewhat easy investing environment with very little volatility up until just recently. The VIX, a popular measure of the stock market's volatility expectation, is currently higher than anytime in 2017. With that in mind, I would take a serious look at your risk versus reward temperment. At this point, you do not have as much time to make up any potential significant losses in your portfolio.
Understanding that you will need income starting at age 67 for 25 to 30 years, it would be beneficial to continue with equity investments during that time as long as you are not scared with the market ups and downs. Over this time horizon, you will more than likely see another two, three or more full market cycles (highs and lows).
One consideration is to not invest directly in stocks unless you are able to diversify across at least 40 or 50 stocks. If not, you should consider a couple of index funds instead to reduce the risk of owning fewer securities.