Now that I am retired, I realize that my money needs to keep working even though I am not. What’s the best way to do keep that money engaged, functional and working for me?
Somehow when I was much younger I had the idea that when you worked, you saved and invested, but once you retired, you take all your money and put it in something “safe.” But I have since changed my tune.
Volatility, Anyone?
Investing with the opportunity for gain means there is opportunity for loss. That’s the nature of the world. If our overriding objective is potential for gain, we must take some risk. If our overriding objective is avoidance of potential loss, we minimize risk.
Invested
Much of my assets are in stocks. As mentioned previously, I invest for the purposes of getting income, as I am a dividend investor. If gain also accumulates, all the better.
But
The yield on high interest savings and money market accounts has moved up recently, and can approach 2.50%. The current yield on the S&P 500 is less than 2%. It ended 2018 at 2.14%. Many normal dividend stocks pay anywhere from 1% to 3% and sometimes up to 5%. So it is possible to get as much or sometimes more yield from a high-yield money market account than from the general stock market. But the stock market has one major advantage: potential gain in equity prices.
So while the yield on dividends vary and is sometimes less than a money market account and sometimes more, the long-term opportunity for gain in the underlying equity prices is something unavailable to bank depositors.
Why?
You may ask: if I am a dividend investor, why would I care about equity prices; aren’t I just interested in the yield? A fair question. The answer is that while I am a dividend investor and I care most about yield, I also I am also interested in growing my assets. By using dividends to buy more assets, I have an opportunity not available to money market depositors.
And Another Thing
Dividends, and the underlying securities, are a hedge against inflation. As inflation advances, so often do equities and/or dividends. Money market accounts do move as well, but not as strongly, in my opinion.
How Long Is Long?
Going to cash could be an appropriate move if the need for the cash is imminent. If I was about to buy a house in a few months or a year, I would never invest the down-payment in the market. However, a recent retiree (ahem, like me…) might be looking at a twenty to thirty year retirement, so holding cash for that length of time would not be an intelligent move. We need growth and some ability to survive inflation.
Once you retired, how have you handled the question of how to maintain your assets? Comment from the contact page.
A sampler by Eliza Woodward, British, 1818, is courtesy Metropolitan Musem of Art.
The pre-Civil War Underground routes to Canda for fugitive slaves was published in 1898. Courtesy New York Public Library.
The thangka of Green Tara, 13th century Tibet. Courtesy Cleveland Museum of Art.
The post I’m Retired But My Money Isn’t first appeared in Smile If You Dare.