#53 Stocks are also worthwhile for retirees

Looking back 100 years, there were no periods on the Swiss stock exchange with a negative total return if the holding period was at least 14 years. For the Dow Jones, it took a maximum of 16 years after adjusting for currency effects.

More and more lump-sum withdrawals

More and more retirees are withdrawing their pension fund assets as a lump sum rather than as a pension. Currently, more than 40 percent opt for a full lump-sum withdrawal, while 30 percent choose a combination of lump-sum withdrawal and pension. Only 30 percent opt exclusively for a pension. We have written a separate article on the advantages and disadvantages of these options.

If you decide to take a lump sum now, the question arises as to how you should invest your assets. In today's low interest rate environment, fixed-term deposits and medium-term notes are very unattractive. Furthermore, you cannot withdraw these funds flexibly.

The catch with the dividend strategy

High-dividend stocks are particularly often cited. At first glance, these seem sensible. However, a dividend strategy focuses mainly on traditional economic sectors such as energy and food. This means that you are not investing in growth industries, because technology stocks are not typically dividend bonanzas.

In short, a dividend strategy means less volatility, but also lower long-term performance. Plus, high dividends are tax-inefficient for Swiss private investors. You have to pay tax on investment income as part of your taxable income. On the other hand, you don't have to pay tax on capital gains in Switzerland – unlike taxpayers in many other countries.

The right strategy

As a retiree, you need to choose an investment strategy that suits your financial goals. Depending on your circumstances, you may want to remain invested or you may need to withdraw capital. You can have regular payouts or only when you need money.

This distinguishes retirees from younger investors with earned income. The latter are still in the midst of building up their capital and expect a very long investment horizon. But in the withdrawal phase, 100 percent equity exposure does not make sense. Although the stock markets rise in the long term, you must also be able to finance and cope with necessary capital withdrawals in difficult stock market years.

It is important that you avoid market timing as much as possible, even in retirement. A regular withdrawal plan, such as that offered by True Wealth, helps with systematic savings.

When it comes to your investment strategy, you should take into account that living expenses are often incurred in Swiss francs. Therefore, a slight overweighting of the domestic market or partial currency hedging makes sense. That is why True Wealth's investment recommendations take this issue into account.

Low fees are key

Finally, low investment costs are very important. Twenty years is a long time. Excessive fees act like sand in the gears and slow down the compound interest effect. In addition, retirees often have large amounts of money at stake. This makes a cost-efficient investment solution all the more important.

Conclusion

Even as a retiree, it is worth investing. If you want to protect yourself against inflation and the interest income from your bank account is not sufficient in the long term, you actually need to invest – preferably in stocks or corresponding ETFs. The exact size of your personal stock allocation depends on various factors, such as your individual risk tolerance.

It is best to run through the options. If you are not yet a customer, simply open a trial account. This will allow you to find your optimal investment strategy without any paperwork and without depositing any money.

Are you considering whether to withdraw your retirement capital early or at the normal time? We would be happy to offer you a half-hour consultation with one of our financial planners. If you are interested, please send us an email.