Despite stocks bouncing back on the morning of Jan. 31, the S&P 500 is still on pace for its worst month since Oct. 2020 — and the slide could spell trouble for seniors who are heavily invested in the stock market, financial experts suggest.

                By                    Georgina Tzanetos

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Data from Vanguard Group shows that among their retail clients ages 65 through 74, 17% have a whopping 98% or more of their portfolios in stocks, The Wall Street Journal reports. The outlet also reports that 40% of Fidelity 401(k )investors aged 60 through 69 hold 67% of more of their portfolios in stocks. 

The picture is not what you’d expect of a group that, according to investing principles, should start pulling off the reins a bit to offer more security for fixed incomes. Financial advisors and investment managers alike typically create investment portfolios following the standard 60/40 allocation for someone with a moderate risk tolerance — meaning 60% equities and 40% bonds — to provide greater stability during market turbulence.

The recent report by the WSJ shows that seniors are comfortable taking considerably more risk — but it could spell trouble ahead of what analysts are calling an impending market correction. 

On Jan. 3, Paul Schatz, president of Heritage Capital, told Yahoo Finance Live: “It’s not going to be the great [sic] year for the stock investor. It’s not going to be the year where you close your eyes, rising tide lifts all boats. It’s going to be more difficult. Volatility is going to be on the rise. Fed’s going to raise. I think GDP growth slows down. I think earnings growth slows down.”

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Should Older Investors Reconsider Stock Holdings?

For older investors who rely on the success of their investments to cover their living expenses it might be time to rebalance ahead of what may be a rocky year for stocks.

How much you should hold in equities boils down to how much you can expect to withdraw in retirement. Those who expect to draw 2% per year have more room to play with equities than, for example, someone who expects to withdraw 5% or 6%. One issue is that “some feel almost ho-hum about stock-market volatility,” financial adviser Paul Auslander detailed to the WSJ. Another issue, he says, is that these seniors are “getting older and they have less time to make up for losses.”

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However, seniors frequently have multiple retirement accounts to draw on. One of the reasons they might be so open to risky equities exposure could be because there are other accounts — be it Social Security benefits, annuities, life insurance, or savings accounts — that they are able to subsist on without drawing on stock investments.

This makes for a dangerous assumption of leeway to play the stock market with — leeway that, in reality, may not exist. 

Any excessive degree of exposure is a tenuous idea heading into market correction territory. It’s difficult to pull back after some investors have enjoyed double digit returns over the past two years, but as Auslander advises, staying the course could be dangerous heading into market volatility.

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Many seniors began investing before target-date funds existed, but they could do well to mimic their trajectories. Target-date funds, over a period of years, pull the investor away from riskier options like stocks and into safer vehicles like government bonds. While no one wants to walk away from a bull market, seniors in particular will need to pay attention to potential market volatility in coming months.

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