Starting Stock Market Investments at Age 60: A Guide

Q. I have limited experience in funds and the stock market but am considering taking the plunge. Am I too old to start investing in stocks at 60? – Anthony, Devon

It’s never too late to begin your investing journey. The Office for National Statistics indicates that a 60-year-old man today has an average life expectancy of 85 years. There’s a 25% chance of reaching 92 and a 10% chance of living to 97. These statistics illustrate that there is ample time for you to engage in investing.

Prior to starting, it’s crucial to have some savings set aside for emergencies and any foreseeable expenses, such as acquiring a new vehicle or home renovations. Any savings beyond that can be considered for investment. Here are some factors to take into account.

Understanding Asset Allocations

When it comes to stock market investments, various assets with differing risk profiles are available.

At the lower end of the risk spectrum, government and corporate bonds offer an opportunity to lend money in exchange for fixed interest rates. These are suitable for investors seeking stability and consistent income without significant market volatility.

Next up on the risk ladder are alternative assets like commercial property funds or infrastructure funds, which provide rental income and an opportunity for capital appreciation.

On the higher end of the risk scale, investing in shares allows you to become a partial owner of a company and participate in its profit growth. Higher risk can lead to greater returns; historical market analysis indicates that UK shares have yielded an average annual return of at least 5% above inflation over the last century. In contrast, bonds have returned about 1.4% and cash has realized returns of less than 1%. This information underscores that cash may not serve well for long-term savings.

Establishing Investment Objectives

Your investment timeline plays a crucial role in determining your risk tolerance. If you anticipate needing access to your funds within five years, a lower-risk portfolio with a heavy emphasis on bonds may be appropriate; however, if you’re looking at a horizon of over ten years, you may want to focus on shares.

Your specific financial goals are essential as well. If you desire steady income, investing in corporate bonds, commercial property, and dividend-paying stocks can be beneficial. Conversely, if your focus is on growth and you’re not dependent on immediate income, shares from rapidly growing sectors like technology or smaller companies might be appealing.

Tax Efficiency in Investing

Investing in the stock market can be tax-efficient compared to holding cash. Income from cash savings is taxed at standard income tax rates, while dividends from shares are generally taxed at a lower rate. Much of the total return from stocks often arises from capital gains rather than dividends, and currently, capital gains tax (CGT) rates are lower than dividend tax rates. It’s important to stay informed, as there may be changes to CGT rates when the next budget is announced.

According to existing regulations, select shares listed on the UK’s Alternative Investment Market (AIM) qualify for business relief, which may exempt them from inheritance tax if held for two years or more. While AIM shares are highly volatile and may not suit risk-averse investors, they could be advantageous for those focusing on estate planning. As mentioned, it’s wise to monitor any potential budgetary changes before committing to these investments.

Lastly, consider that investments can be placed within a stocks and shares ISA, which provides tax relief from dividend tax and CGT. Additionally, in the event of one partner’s death, the surviving spouse or civil partner can inherit the deceased’s ISA allowance, receiving an ISA subscription allowance equivalent to the former holder’s account value at their date of death, regardless of whether the inherited money is utilized.