3 Reasons Why Retirees Should Own Stocks
The stock market can certainly take investors on a wild ride. With the market's potential for huge up-and-down swings, retirees are often leery about keeping their money in stocks – when you're living on the money from those investments, the idea that they might suddenly plummet in value is pretty scary. But despite the risks, stocks are still a crucial part of any retiree's portfolio.
Diversification is a way of managing risk by spreading your money out over a wide range of investment types. The idea is to put your money in investments that are likely to head in different directions at any given time. For example, take stocks and bonds. During times of inflation, stocks tend to go up in value while bonds tend to drop. During times of deflation, the opposite happens. So if you have some money in stocks and some in bonds, at any given time, some part of your portfolio will likely be going up in value (and making up for any losses on the other parts).
Studies have shown time and again that diversified portfolios strongly outperform non-diversified portfolios over the long term, and have less volatility. In other words, holding stocks in your portfolio actually reduces your overall risk as long as you also have other types of investments balancing them out.
Source: Fool.com
