5 Key Steps for Building Wealth in Your 70s
Updated: May 17
This is the final article in a series of key steps for building wealth throughout your life. Most of this series has focused on a variety of general best practices for building wealth, however, this final article on building wealth in your 70s will be a bit different.
As a reminder, here are the previous articles in this series:
As you enter your 70s, you will likely decide to reallocate some of your portfolio out of stocks and bring it into less risky investments such as bonds and cash equivalents. That is a sound strategy, but you still might want to leave a significant portion of your money in stocks to keep earning returns from growth and dividend income.
In this article, I will focus on how you should take care of the stock portion of your overall portfolio. This will help you maximize your stock returns and allow you to keep building wealth in your 70s as you enjoy your retirement.
1. Build Wealth with a Core Portfolio
Investing in stocks – and indeed in anything – always involves some element of risk. It’s your job as an investor to try to minimize the amount of risk you take on as you maximize your returns. This is the key to building wealth in your 70s.
One of the most important things to do when you’re investing in stocks is to build your core foundation. If your portfolio lacks that, the rest can come crumbling down.
Your core portfolio should be composed of a diversified group of long-term stock investments across different sectors and industries. Now, some people invest in several different tech stocks like Google (Nasdaq: GOOG), Apple (Nasdaq: AAPL) and Amazon (Nasdaq: AMZN) and think they are well-diversified – But they’re wrong!
You need to think about investments in a variety of different sectors and industries, not just tech. Consider stocks in industries like healthcare, consumer staples, energy, durable goods manufacturing and others.
In addition to diversifying your stock holdings across different sectors and industries, you should also expand your investments across different market cap sizes, and even move into international stocks as well. This will protect you from some downside risk simply by ensuring that you don’t have too much of your stock portfolio invested in one concentrated area.
2. Have an Exit Strategy
Building wealth in your 70s isn’t just about buying stocks; It’s also about knowing when to sell them. Therefore, it is essential that you create an exit strategy to help you know when it’s time to sell a position.
One great exit strategy is to use trailing stops to limit your losses. This means increasing stop-loss orders as your position rises in price. For instance, you might place your sell stop order at 25% below the current price of the stock.
As long as your stock price continues to climb, there’s no need to sell. However, if it starts taking losses and pulls back 25% from its closing high, you’ll need to sell out the stock with the order. This can protect gains you made as it rose and prevent bigger losses.
But one of the hardest parts of investing is knowing how to cut your losses early. When you’re building wealth in your 70s, you absolutely need to.
So, if you’re beginning to lose too much value in a position, make sure to cut your losses early. Generally, strategies like the trailing stop mentioned above are a great way to do that.
3. Be Mindful of Position Sizing
When it comes to building wealth in your 70s, position sizing matters. Position sizing refers to how much of any one stock position you should own at a time.
The general recommendation is to put no more than 4% of your total portfolio in any one position. That way, if the stock collapses, it won’t take your entire portfolio with it. It's another way to keep you well-diversified.
If you fall in love with any particular investment – say one particular biotechnology stock – you may be tempted to put significantly more than 4% of your entire portfolio in it. It is important to resist that temptation.
Do you remember what happened during the financial crisis of 2008? Many people had their savings tied up in one individual stock or were not diversified enough. When those stocks plunged, they lost a more than significant value of their entire investment.
Putting too much of your money in any one position is essentially gambling – it’s a throw of the dice. Good investing should never be gambling. It should be informed by educated decision-making. This guideline will help you make good decisions about how much to invest in one stock.
4. Keep Your Expenses Down
Building wealth in your 70s means keeping your trading expenses down. Any money you pay to your mutual fund or wealth manager is money you’re deducting from your returns.
Part of the Wall Street business model is charging you high fees for investing services. Don’t let them do that! Find ways to minimize these fees.
For example, compare one of the consistently top ranked bond funds, the Pimco Total Return Fund Class A (MUTF: PTTAX), which has a high front load fee, and a high expense ratio, with the Fidelity Flex Core Bond Fund (MUTF: FLXCX), which has no load fees, and a 0.00% expense ratio. You can get a much better deal on the latter.
In a world that is now filled with plenty of no-load funds, low-cost ETFs, and zero-commission and zero-fee trading platforms, you no longer have to pay the high fees of Wall Street just to trade.
Fees for services add nothing of value to your portfolio, but they do take away from your returns. Simply put, it is in your best interest to cut these fees down to the bone.
5. Minimize Your Tax Expenses
Like fees, giving your money to the taxman eats away at your investment returns when building wealth in your 70s. It adds nothing of value to your portfolio, and you’ll want to minimize and eliminate tax expenses as much as possible.
Here are five ways to do so:
Buy Quality Stocks -The more you invest in quality stocks, the less you’ll need to sell. Every time you earn capital gains and sell a position, you incur the capital gains tax on the transaction. Buy and hold quality stocks to avoid turnover.
Be Aware of Time Intervals – Hold on to your positions for at least 12 months to avoid a short-term capital gain. The government taxes short-term gains at the same level as earned income, which can be as high as 39.6%. However, long-term gains are taxed at less than half that. If you do any short-term trading, you can lower taxes by doing it in your IRA.
Offset Short-Term Gains With Losses – When you sell a stock for a capital loss, it can offset some tax liability on your realized gains. You can also take up to $3,000 in capital gains losses against earned income. So sell those losers.
Avoid Actively Managed Funds – Managed funds can have high turnover. Some require certain distributions. Overall, this can lead to higher expenses and taxes. So, it’s good to avoid most active funds.
Own High-Yield Investments in Tax-Exempt Accounts – At certain levels of income, the government taxes dividends and interest. You can limit paying some taxes by holding income investments like bonds, utilities and trusts in an IRA rather than in a taxable account.
By minimizing the amount of money you’re paying to Uncle Sam, you will be able to keep more of your returns and build your wealth much faster.
Building wealth in your 70s is about continuing to earn returns while you preserve the bulk of the wealth you have accrued over the last five decades.
Keep continuing to build wealth in your 70s no matter what. If you have been disciplined, it should be no problem for you to do this while you are enjoying your retirement to the fullest.