They Say You Are Taking Too Much Risk – Episode 345

by | Jul 13, 2023 | Videos

Are Elderly Clients Taking Too Much Risk?

According to the Wall Street Journal (and Vanguard), some elderly investors might be taking too much risk with their investments.
Is that possible?   The Wall Street Journal spells out their exasperation:  “America’s Retirees Are Investing More Like 30-Year-Olds” 

The article in the WSJ (link below) spells out how approximately 20% of Vanguard clients – average age 85 – have ALL their (taxable) investments in stocks, and why that may be too risky for them.
But, is it really too much risk?  And, just what is too much risk?  Is it the same for everyone?

In this week’s video, Tom discusses what they left OUT of the article, and possibly a huge reason for clients in their eighties to STAY in stocks.
We were somewhat surprised they did not mention this reason in their article (hint – it has to do with taxes).  And let’s face it, some elderly folks have been through decades of ups and downs in the economy and the markets.  They KNOW if they are taking too much risk.

Show Notes for “Taking Too Much Risk Episode #345”

Link to the WSJ article:

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Transcript for “Taking Too Much Risk Episode #345”

Apparently some of our older citizens are misbehaving. They’re investing like 30 year olds!
The Wall Street Journal has a scandalous article. Let’s talk about it!

Welcome to the Mullooly Asset show, I’m your host Tom Mullooly. Today we’re going to talk about something a little scandalous!

Apparently Vanguard, and the Wall Street Journal, think older folks shouldn’t be investing too heavily in stocks. There was an article – we’ll link to in the show notes – that, at Vanguard, one-fifth of taxable brokerage clients… so 20% of their taxable brokerage accounts.

Folks who are 85 years old and above, have nearly ALL of their investments in stocks.
And we’re okay with that.
The tone of the article seems to be a little “scandalous,” like this is a bad thing!

I’m not necessarily upset with that. And I don’t think here at the firm we’re really all that upset with something like that.

Personally, I don’t think people take enough risks when it comes to their investments. But that’s my own personal opinion.
You’ve got to do what is right, and what’s comfortable, for you.

The article spent most of their ink talking about “not having a proper allocation” or “balance” or diversification. But I just want to zoom in on a couple of things I think are really important.

When you look at someone who’s 85 years old, I know a couple of things about them.
If you’re in your eighties – you were born between 1934 and 1942. So I know you were born in the later part of the depression, and you grew up through World War II.

The main thing, the main takeaway I’ve got with folks in this age bracket (they’re my parents age bracket):

They are very good at saving.
They understand the value of a dollar.
They know how much things cost.
And they want to keep their expenses low.
— These are really important things we ALL need to remember.

So I also know that these folks have seen highs and lows:
– in the economy
– in the United States
– in the stock market
through many decades of experience…

I also know that if you go to work with an advisor — the advisor is going to talk about “you need to have proper diversification, you need to spread the risk around…”

That is their JOB. And you should hear that speech from the advisor.
It does not mean that’s right for you. You have to go with what’s right for you.

So the thing that wasn’t mentioned in the article – which I was very disappointed they should have brought this up – taxes.

If you’ve owned stocks for 20, 30, maybe 50 years; you have a huge amount of unrealized capital gains. And if you go to diversify this account, you’re going to have a huge tax bill. I mean a huge tax bill. And honestly you’re going to question whether it’s really worth it to diversify when you’re doing something like that.

Why don’t you just stick with what’s working? It’s a good question.

One alternative – which I think was missed in the article – is the fact that when someone in their eighties passes away, the stocks that the next generation will inherit will have a stepped-up cost basis.

All that unrealized capital gain goes away.

There are no taxes that are due in a situation like that. One very good reason to hang on to the stocks that you’ve owned for a long time.

If you are in this situation — or if you’ve got a family member that’s in this situation — and you’ve got questions, not sure what to do — get in touch with us. We’d be happy to talk to you.

That’s going to wrap up this episode of the Mullooly Asset show.
Thanks again for tuning in.

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