How to Choose Investments for Seniors

Man doing research on his laptop: how to choose investments for seniors

Risk-taking might be fine for the younger investing crowd, but it’s often anathema for seniors and retirees. Why? Because young folks still have plenty of human capital left. When you’re young and lose money in the markets, you have both the time to recoup losses and the ability to work more to increase income. But retirees can’t increase income and seniors don’t have decades to rebuild their portfolios. However, seniors can still earn interest on their capital through, conservative investments. Read on to learn how to choose investments for seniors.

Or, if you have additional questions, contact our team at Good Life Mt. Pleasant! We can’t wait to help you achieve your financial goals.

What Criteria Should Be Used When Looking for Investments for Seniors?

Low-risk, low-yield investments may not be appealing to younger investors, but they are a lifeline for seniors. Seniors are stuck between a rock and a hard place. No one wants to lose purchasing power to inflation and taxes, but seniors can’t risk losing capital with volatile stocks or other assets.

For seniors, the best investments have some sort of consumer protection, like FDIC insurance on bank products or a proven track record of minimal risk like government bonds. Stuffing cash under the mattress carries its risks (especially in periods of high inflation), but seniors should still be looking for some type of return on their money, even if it’s only a handful of basis points.

Types of Investments Ideal for Seniors

Here is a list of interest-generating assets that seniors can use to preserve their nest eggs. However, keep in mind that divident payments are not guaranteed and may be reduced or elimated at any time by the company.

Note that some of these assets like dividend stocks and Treasuries can be held in accounts like Health Savings Accounts (HSAs) or retirement accounts like IRAs, which offer tax breaks and help retain purchasing power. Consult with your advisor about which accounts to hold specific assets in.

High-Yield Savings Accounts

The most convenient form of investment for seniors is simply a high-yield savings account. Savings accounts are protected by the Federal Deposit Insurance Company (FDIC) for up to $250,000, so there’s no risk to any money deposited up to that amount, even if the bank holding the account should fail. Money in a savings account can be accessed up to six times per month too.

The problem with savings accounts is the limited yield they offer, even from the most generous banks. Despite rising interest rates, the average yield on a savings account is under 60 basis points and the best accounts will offer little more than 1%. These accounts should become more beneficial as interest rates rise, but your cash won’t keep up with inflation here.

Bank CDs and Money Market Accounts

Certificates of deposit (CDs) function similarly to bonds. You agree to lock up your money for some time and earn interest based on the amount you put in and the length of the term. Once the term ends, the money is returned. CDs are also covered for up to $250,000 by the FDIC, but the yields tend to be less than bonds (and in some cases even savings accounts). The best CDs currently yield around 1.5%.

Money market accounts from banks are insured by the FDIC, but money market mutual funds are not. These funds invest in low-risk securities like CDs, government bonds, and commercial paper, which offer returns beyond typical savings accounts and CDs. However, these funds still rarely beat inflation.

Keep in mind that CDs are FIC insured to specific limits and offer a fixed-rate of return if held to maturity, whereas investing in securities is subject to market risk including loss of principal.

US Treasuries, TIPs, and I-Bonds

Government bonds are popular for fixed income securities, more so than municipal bonds and corporate bonds. US Treasuries are short-term federal bonds sold via TreasuryDirect. They can have a duration as short as a few months or as long as 30 years. The most common federal bonds are the two-year and 10-year Treasuries, which currently yield 3.14% and 3.22% respectively.

Remember, bonds are also subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise. Bonds are always subject to availability and price change.

Treasury inflation-protected securities (TIPS) help elimate inflation risk to your portfolio as the principal is adjusetd semiannualy for inflation based on the Consumer Price Index while provding a real rate of return guaranteed by the U.S. government.

Treasury Inflation Protection Securities (TIPS) and I-Bonds are government bonds linked to the Consumer Price Index (CPI), which is the primary measure of inflation in the US. The higher the rate of inflation, the more these bonds will yield, making them excellent tools for seniors to preserve purchasing power during periods of high inflation.

Stocks That Pay Dividends

High dividend stocks are another one of the most common investments in the equity markets. When a stock pays a generous dividend, it means they’re more concerned about rewarding shareholders with excess profits instead of focusing on growth and R&D. Some of the stocks that pay the highest dividends are Real Estate Investment Trusts (REITs), consumer staples stocks (inelastic demand), and blue-chip companies with strong product lines and a history of success. But stocks are inherently risky and this should be the smallest portion of a risk-averse senior’s portfolio.

Keep in mind that investing in Real Estate Investment Trusts (REITs) involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained.

Choose Your Investments Wisely with Good Life Mt. Pleasant

We hope you enjoyed this guide on how to choose investments for seniors. At Good Life Financial Advisors of Mt. Pleasant, we understand that a lot goes into choosing the right investments. There is so much to think about, and we know that it can feel overwhelming. To ease your worries and to learn more, contact our team at GLMP.