Investing after age 55 can be a daunting task. The main consideration is asset allocation. As your time horizon for investment decreases, so should the dollar amount of assets dedicated to high risk assets. The optimal allocation after age 55 is dependent on the person, but I'll provide some suggestions which take all risk tolerance levels into consideration.
Decide on your ideal asset allocation. Investing in stocks may be more profitable in the long run, but they also have more risk than debt. Bonds offer income, but limited growth. When we're just starting our careers, the investment time horizon is much longer, and our ability to withstand stock price volatility is greater. If you prefer income over growth, you should move to bonds or preferred stock.
Subtract your age from 110. Chuck Carlson, author of the book "Eight Steps to Seven Figures" and investment expert, suggests subtracting age from 110 to calculate the percentage of stocks to hold. For example, a 55-year old would hold 55 percent in stocks; the remainder divided between cash and fixed income securities. Ultimately, asset allocation is more specific to individual risk tolerance than age.
Invest in a principal guaranteed products insured by the FDIC. As a 55 plus investor, finding products that are principal guaranteed are key. Younger investors can afford to ride out the cyclical nature of the market. Equity-linked certificates of deposit or annuities are a good way to safeguard the principal and participate in stock market appreciation. Speak with your broker to set this up.
Invest in value assets; that is, equities which are known to hold value. Blue Chip mutual funds, commodities or international bank bond funds are some examples. The idea is to purchase an asset that is trading at a lower range only due to lack of credit in the market.
Invest in "riskier" assets. As life expectancy increases, people are living 20 to 30 years past retirement; there is still room for growth stocks and a little risk. Small cap mutual funds are a great way to do this.
Use the Wall Street Journals Asset Allocation Calculator to verify your assumptions. The calculator is a good way to test theories and see which variables impact your target allocation the most. See the link in our Resources section.