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Age and Investing

About 60% of Australia’s wealth is held by those over age 55.

  With age comes wisdom doesn’t it?  Well, yes… and no.  Literacy improves with experience but memory and numeracy peaks early.  Investment judgement utilises both, so it peaks in our 50s.  Even so, we have many quick-witted elderly clients who are successfully managing to optimise the relentless aging process.

However, the prevalence of those brain impairing ailments we group as ‘dementia’ is increasing dramatically.  The largest growth of people with dementia is expected to occur this decade.  About 10% of those over 65 now have some form of dementia and 30% of people over 85.  It often goes un-noticed for quite a while and children are understandably reluctant to broach the topic with their parents.  Though it would never be easy, by the time intervention does occur you‘re probably not so able to accept and deal with it.

As we age, it is normal to have brief memory lapses (senior moments) though this is not dementia.  However, the rising prevalence of dementia underlines the value of trusted, ethical and professional advice relationships.  It is particularly pertinent for self managed super fund trustees, where an agreed action plan for the possibility of emerging dementia is needed.

Our physical abilities improve dramatically to a peak in our 20s, then decline.  With intelligence, we seem to get slower but wiser with age – experiential background knowledge and vocabulary keep on developing.  Abilities with name and face recall mature early and our capacity to absorb and process numbers, names and facts is best at age 18, dropping away thereafter.

From age 25 to 35, our working memory (the amount we can memorise and manipulate at one time) peaks, then gradually declines.  But emotional intelligence (reading another’s body language for how they feel) is best from age 40 to 60.  Literacy (language and vocabulary) keeps growing into our 70s – it’s our crystallised intelligence.  However, fluid intelligence (the ability to solve novel problems) declines steadily with age.

If you’re over 65, you may be interested in ways to compensate for age related cognitive changes.  These include minimising stress, maintaining good health, keeping mentally stimulated, using cues to jog your memory and following routines to aid memory (pill box, keys in same place, etc).

Investment decision making requires a blend of crystallised and fluid intelligence for good judgement and optimised investment performance – it seems to peak at about age 53.  As we can’t stay that age for ever, it may help to have a blend of ages on your investment team.  With today’s dependence on accumulated lump sums, investing prudently is critical both for those directly involved and also for the durability of the taxpayer-funded safety net.

Cognitive decline with age typically occurs gradually over many years. Though investment judgement slowly declines after age 53 or so, confidence in managing one’s finances does not.  So unsurprisingly, research shows most people experiencing cognitive decline still confidently retain primary financial responsibility.

Fortunately, dementia is a small chance but declining cognition is common among those in their 80s.  So it can be wise to utilise some trusted advice, even if you’ve previously managed your affairs entirely on your own.  Studies show over half of elderly people seek no help with their finances apart from their spouse. This can be a problem since adult children in loving, respectful families are typically reluctant to intrude on their parents’ affairs unless they signal a need.  It can be best to plan ahead to avoid the need for belated intervention while mapping out the steps you’d like to occur, should the need arise later.