From a strictly potential for gains vs. losses point of view, the risk in the stock market is the same for an 80-year old as for a 20-year old. The difference is that the 20-year old is looking at a 50-year plus time frame for investing and the senior citizen has a slightly shorter time period. The older investor must weigh his goals for the money invested in the market against what a big drop is share prices would do to those goals.
Sources of Income
An 80-year old is well along into retirement and his personal risks in the stock market depend on the sources of his retirement income. If the main sources of income are a pension and Social Security, a stock market drop will not significantly affect his lifestyle. If, on the other hand, the retiree depends on dividends from stocks and stock mutual funds or even withdraws some capital each year to pay expenses, a bear market could be very detrimental to the lifestyle of an 80-year old.
Total Portfolio Allocation
Stock market risks for a senior citizen depend signficantly on the person's portfolio asset allocation. If the bulk of his investments are in bonds or bond funds and just a small portion is in the stock market, that allocation is probably age appropriate. However, if the 80-year old owns a large portion of stocks or funds, even if he has owned those investments for years, some asset reallocation may be appropriate to reduce the exposure to a potential bear market in stocks.
Life of Investing Experience
An 80-year old who has been investing in stocks for his whole adult life probably has a better understanding of the risks than a 30-year old who has never suffered through a severe bear market. An older investor may have more confidence and skill for investing in the stock market than younger investors. If the 80-year old understands the risks and has owned stocks through several bear markets, he knows what he is doing and most likely has taken steps to minimize the risks.
Bear Market Worst Case
One way to evaluate the risks of the stock market for an older investor is to determine how much a severe bear market would affect the overall finances of the senior individual. The 2008-2009 bear market was one of the most severe with stocks dropping 50 percent in value. If a 50 percent decline in the 80-year old's stock holdings would severely affect his finances, it may be appropriate to reallocate some of the stock money into more stable investments.
Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.