How older investors can maintain their long-term perspective


Maintaining a long-term investing perspective makes sense for younger investors with decades ahead of them before they reach retirement age. But what about investors who are either nearing retirement or already retired? Vanguard investing experts Don Bennyhoff and Kahlilah Dowe explain how older investors can still think long term and why the risk profile of their portfolios may change as investors get older.

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Notes:
For more information about Vanguard funds, visit vanguard.com, or call 877-662-7447, to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus; read and consider it carefully before investing.

All investing is subject to risk, including the possible loss of the money you invest. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.

Diversification does not ensure a profit or protect against a loss.

This webcast is for educational purposes only. We recommend that you consult a tax or financial advisor about your individual situation.

Advisory services are provided by Vanguard Advisers, Inc. (VAI), and registered investment advisor.

© 2016 The Vanguard Group, Inc. All rights reserved.

TRANSCRIPT

Matt Benchener: Jay in St. Paul. Jay asks, “At the age of 64, I don’t have as much time to recover losses. So we just talked a lot about long-term perspective and things of that nature, any advice for soon-to-be retirees?

Don Bennyhoff: Well, maybe I’ll start with this one. It’s sort of related to the question that Kahlilah had, but I think it adds a different dimension with this aspect of time. And I think one of the things that we all know is that as you start to approach retirement, it’s a really great time to use that as a chance to reassess what you’ve been doing to get you to that point. You’re about to enter retirement, your income is about to be replaced by maybe some of the cash flow or the spending you might get from the assets you’ve saved to get you to that spot. And so you do have to reassess, kind of going back to that idea of the partnership between the investor and the market because when an investor approaches retirement, one of the big things that they are trading off for retirement is they lose the income that a lot of times is part of their wealth creation. And so that’s where I think the impact on an investor, say you lose 20% in a market, the impact on an investor who’s closer to retirement compared to maybe the earlier case where you have someone who’s younger and maybe just getting started, there’s sort of two impacts on that 20%. They both lose the same percentage, but the person who’s maybe in retirement or close to retirement doesn’t have that cash flow, that income to use to maybe help defray or moderate the effects of that loss. They can’t save more to replace the loss. Maybe with a younger investor that is not as big an aspect for them. The other thing with the younger investors is that typically they haven’t quite accumulated the capital that an investor has when they’re approaching retirement, which means that if you lose 20% off of a million or a $2 million portfolio, as opposed to a $10,000 or a $20,000 portfolio, it has very different emotional effects. And so that needs to be considered as well. So for someone who is approaching retirement, considering some of these factors, it’s a great time to sit down, reassess your situation/your financial plan, reevaluate where you are and what you want to do, and kind of do a checkup at that point.

Kahlilah Dowe: Sure. And I would just add, you know, when you think about the amount of time that you have to recover, one way to look at it is how much time do I have before I need to turn this into a source of income? The other thing though is to look at it based on the amount of time over which you’ll need to spend from the portfolio. And so for a person who’s 64 years old, they could have another 30 years or so that this portfolio will need to last them. And so while it’s painful, I’ll say, for someone coming up on retirement to experience a market decline, I think they could be in a position where they have quite a bit of time to recover. I think the most important thing is, as Don had mentioned, to make sure that you don’t have too much exposure to the market to begin with, right? So if you’re coming up on retirement, maybe you shouldn’t have 70% in stock. It should be a lower number. So to the extent that your exposure to stocks reflects your current situation, you should be in a position to try and ride it out.

Important information
For more information about Vanguard funds, visit vanguard.com, or call 877-662-7447, to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus; read and consider it carefully before investing.

All investing is subject to risk, including the possible loss of the money you invest. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.

Diversification does not ensure a profit or protect against a loss.

This webcast is for educational purposes only. We recommend that you consult a tax or financial advisor about your individual situation.

Advisory services are provided by Vanguard Advisers, Inc. (VAI), and registered investment advisor.

© 2016 The Vanguard Group Inc. All rights reserved. Vanguard Marketing Corporation, Distributor.