Conventional wisdom about investing says that as people get older they should reduce their financial assets on the stock exchange.
One of the justifications given in this regard is that stocks will surely increase in value in the long run, but in the short term they are always fluctuating and volatile, so if you are old, you do not have enough time to compensate for your losses in the event of a setback.
And writer Peter Coy says - in this report published by the American newspaper "New York Times" - that this wisdom and the argument that underpins it;
Both are controversial and debatable.
For most retirees, it may make more sense to get involved in the stock market as they get older.
The reason is that the wealth they own is in part their contributions to social security or pension funds, which are very safe, and therefore they can afford to risk the rest of their financial assets in the form of stocks and bonds.
The writer also argues that the belief that the value of stocks will surely rise in the long term, is not necessarily true.
It can be recognized that a longer investment period may mean an increase in the possibilities of achieving profits, but it also means an increase in the risks.
This investment in the stock market can be thought of as driving a car.
Statistically speaking, the odds of experiencing an accident within 5 years are much greater than the odds of experiencing it within 5 months.
These risks, which are no less influential than opportunities and gains, make the writer stress that the intuitions that are transmitted from some financial advisors may not stand up to scrutiny, or when they are put to the test.
Therefore, Lawrence Kotlikoff, professor of economics at the University of "Boston" (Boston), calls on investors and their advisors to pay more attention to the studies and principles reached by leading economists, such as Paul Samuelson.
In a book published this week, Kotlikoff says, "Either we, economics professors, misunderstood the matter, and lost an entire century of research on savings, insurance and investment portfolios, and the Nobel Committee awarded this great prize to some economists by mistake, or the financial planning sector needs to rethink." Take seriously the theories and advice that are taught and applied.
Kotlikoff in his book, Money Magic: An Economist's Secrets to More Money, Less Risk, and a Better Life, sees the ideal planning for investing in the stock exchange. It consists in allocating a large part of the funds to this sector during the youth, then gradually reducing this activity in the years preceding and following the date of retirement, and then returning to the investment to rise again at a later stage after a period of retirement.
As for the theoretical explanation for this advice of entering aggressively into the field of stocks in the young years, it is not that the value of stocks will surely rise after a long time, but because the real capital of young people is human wealth, that is, the energy with which they live and their ability to strive and earn money .
For people with a stable job, this capital is like a bond, as it can be counted on to secure regular income in the future.
In addition, when young people lose their equity investments, they have enough time to intensify their efforts and accumulate capital to repeat the experience.
The writer points out that the investment sector has funds that provide people with the option to reduce their financial contribution over the years, until they reach the specified retirement age.
These funds, which depend on the retirement date as a date to stop payments and start taking profits, and tend more towards safe investment even with lower profits as the retirement date approaches, represented 27% of the assets deposited in pension funds for corporate employees at the end of 2018, an increase of 7% compared to the year before. 2008.
The writer points out that many financial advisors advise to allocate a large part of the income to trading stocks even for people who are in their fifties and sixties, on the grounds that stocks are protected from inflation unlike bonds.
But the writer considers that this argument is also weak, as stocks do not actually provide protection against inflation, and there are, on the other hand, bonds that provide this type of guarantee so that your financial assets will not be eroded by inflation.
Kotlikoff advises investing a portion of the savings people accumulate in inflation-protected securities and holding them for a long time, so that they will generate the income they need on a regular basis when they reach retirement age.
The writer believes that one of the reasons that caused the differences in opinions between economists on the one hand and financial advisors on the other, is that economic academics do not get the opportunity to apply their theories in real situations and with real people.
In the same context, Kotlikoff says, "The general public does not want to worry about details such as the types of taxes on investment and pensions, and the differences in tax calculation laws from one state to another."