Finance
Readers’ questions answered: I am 79 years old. How should I invest?
Navigating our money lives can be messy.
The myriad decisions we make every day about good money habits, where to invest, and how to balance saving and paying down debt are no easy lift.
I regularly hear from readers asking for advice about their own situations and challenges.
The following is an edited sample of readers’ questions and my answers.
I am 79 years old. How should I invest?
Retirees should typically hold at least five, if not 10, years’ worth of living expenses in a combination of cash and high-quality bonds. That will provide protection against needing to dip into your stock investments if things head south. The yields on bonds and cash may not be party-worthy right now, but they’re still respectable. In fact, many certificates of deposit and high-yield savings accounts are paying around 4.75%.
In general, you should aim for a more conservative mix of investments as you get older so you don’t have to get queasy when the stock market slips and slides. To roughly determine what percentage of your portfolio should be in stocks, subtract your age from 110. So, as a 79-year-old, you should have just under a third of your investments in stocks and the rest in bonds and cash.
I have two children (twins) who are 29 years old and neither is very savvy when it comes to managing money. My daughter is a good saver but my son, who is a doctor, cannot save a dime. They both acknowledge their lack of financial understanding. I was wondering if there are courses or books you would recommend.
You hit a pain point felt by many Americans, not just your children. American adults are woefully behind when it comes to financial literacy.
Most of us never were exposed to financial education growing up.
Although it’s too late for your adult children to have had that grounding, this oversight is morphing in a positive direction for today’s students — 35 states now require high school students to take a course in personal finance to graduate, up from 23 in 2022, according to the Council for Economic Education.
Banks have had a stellar first quarter. The major U.S. banks raked in nearly $50 billion in profits in the first three months of the year, The Guardian reported.
That was largely due to Wall Street bank traders, who profited from a volatile stock exchange, Reuters showed.
But even without the extra bump from stock trading, banks are doing well when it comes to interest, the same Reuters article found. And some banks could stand to benefit even more from this one potential rule change.
Morgan Stanley thinks it could have a major impact on Citi in particular.
Upcoming changes for banks
To understand why Morgan Stanley thinks things are going to change at Citi, you need to understand some recent bank rule changes.
Banks make money by lending out money, which usually comes from depositors. But people need access to their money and the right to withdraw whenever they want.
So, banks keep a percentage of all money deposited to make sure they can cover what the average person needs.
But what happens if there is a major demand for withdrawals, as we saw during the financial crisis of 2008?
That’s where capital requirements come in. After the financial crisis, major banks like Citi were required by law to hold a higher percentage of money in order to avoid major bank failures.
For years, banks had to put aside billions of dollars. Money that couldn’t be lent out or even returned to shareholders.
Now, that’s all about to change.
Capital change requirements for major banks
Banks that are considered globally systemically important banking organizations (G-SIBs) have a higher capital buffer than community banks as they usually engage in banking activity that is far more complicated than your average market loan.
The list depends on the size of the bank and its underlying activity, according to the Federal Reserve.
Current global systemically important banks
A proposal from U.S. federal banking regulators could drastically reduce the amount that these large banks have to hold in reserve.
Changes would result in the largest U.S. banks holding an average 4.8% less. While that might seem like a small percentage number, for banks of this size, it equates to billions of dollars, according to a Federal Reserve memo.
The proposed changes were a long time coming, Robert Sarama, a financial services leader at PwC, told TheStreet.
“It’s a bit of a recognition that perhaps the pendulum swung a little too far in the higher capital requirement following the financial crisis, making it harder for banks to participate in some markets,” he said.
Natasha Luscri and Luke Miller consider themselves among the lucky ones. The couple recently bought their first home in the northwest suburbs of Melbourne.
It wasn’t something they necessarily expected to be able to do, but some good fortune with an investment in silver bullion and making use of government schemes meant “the stars aligned” to get into the market. Luke used the federal government’s super saver scheme to help build a deposit, and the couple then jumped on the 5 per cent deposit scheme, which they say made all the difference.
“We only started looking because of the government deposit scheme. Basically, we didn’t really think it was possible that we could buy something,” Natasha told Yahoo Finance.
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Last month they settled on their two bedroom unit, which the pair were able to purchase in an off-market sale – something that is becoming increasingly common in the market at the moment.
Rather perfectly, they got it for about $20-30,000 below market rate, Natasha estimated, which meant they were under the $600,000 limit to avoid paying stamp duty under Victoria’s suite of support measures for first home buyers.
“They wanted to sell it quickly. They had no other offers. So we got it for less than what it would have gone for if it had been on market,” Natasha said.
“We didn’t have a lot of cash sitting in an account … I think we just got lucky and made some smart investment decisions which helped.”
It’s a far cry from when the couple couldn’t find a home due to the rental crisis when they were previously living in Adelaide and had to turn to sub-standard options.
“We’ve managed to go from living in a caravan because we were living in Adelaide and we couldn’t find a rental with our dogs … So we’ve gone from living in a caravan, being kind of tertiary homeless essentially because we couldn’t get a rental, to now having been able to purchase our first home,” Natasha explained.
Rate rises beginning to bite for new homeowners
Natasha, 34, and Luke, 45, are among more than 300,000 Australians who have used the 5 per cent deposit scheme to get into the housing market with a much smaller than usual deposit, according to data from Housing Australia at the end of March. However that’s dating back to 2020 when the program first launched, before it was rebranded and significantly expanded in October last year to scrap income or placement caps, along with allowing for higher property price caps.
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