THE elderly get a raw deal when they apply for mortgages, personal loans, and travel insurance. But investment is one area of personal finance in which age discrimination should not apply. Granted, you must be at least 18 to invest in the stock market, but there is no upper age limit on buying shares.

Even so, financial advisers on the high street tend to steer the elderly away from stocks and shares. A spokesman for Halifax says that its financial advisers would discourage those in their 70s from buying stocks because stocks are “a long-term investment”.

Abbey National says that its advisers would also “err on the side of caution”, although equity investments would not be ruled out. “It would come down to individual circumstances,” an Abbey spokesman adds. “Some older people are perfectly happy to take on a higher degree of risk if they have some spare cash.”

Reluctance to steer older investors toward stocks and shares is understandable, but as many of us now have 15 or 20-year retirements, perhaps it is time to reassess the question of when you are too old to invest in the stock market.

“I don’t think you are ever too old for shares,” says Mark Dampier, of Hargreaves Lans-down, the independent financial adviser. Another IFA agrees. Roddy Kohn, of Kohn Cougar, says: “People should buy shares in their 90s, so long as they can tolerate the risk. Investing in shares has nothing to do with age and everything to do with attitude to risk.”

In 1901 men lived for an average of 48 years and women for 49 years. Life expectancy in 2000 had risen to 75 for men and an average of 80 for women. In the 1950s the Queen would send about 100 telegrams a year to centenarians. In 2000 there were 4,717.

So most people now have longer retirements, and the problem of funding them is becoming acute. This week the Government’s “pensions tsar”, Adair Turner, said everyone should expect to work past the age of 65 if they want to be comfortable in retirement.

For those on the verge of retirement, that is an unpalatable option. For those who have already retired, it is no help at all. They need to find a way of achieving a decent return on their savings, despite interest rates at 50-year lows. The best accounts pay about 4 per cent, as do investment grade corporate bond funds. But with inflation running at 3 per cent, the real return is tiny.

Shares can provide a better income, Mr Dampier says. “It is a rather blinkered view to say that you should not be in shares at all, since many shares pay dividends of 5 to 6 per cent, which is higher than most fixed interest securities.”

It makes sense to keep the lion’s share of your savings in fixed-interest securities and cash, but shares should not be neglected. They key is to choose the right shares.

“Elderly people should be looking at solid earners with cash on their balance sheets, paying good dividends, but dividends which are well covered,” Mr Dampier says. He picks out Barclays, which pays 5.1 per cent, and Tesco, which pays a lower dividend of 3.63 per cent, but that is covered three times. “If you go for too high a dividend, you will find that the rate of dividend growth and cover will be much lower,” he explains.

Mr Kohn also warns investors against chasing too high a yield. “Going for high yields is a classic mistake,” he points out. “The higher yield reflects the greater risk. Dividends on shares rise as the stock starts to decline.” He says that older investors willing to take some risk would be better off buying high-yield corporate bond funds which have a similar risk profile but offer greater diversification and tax efficiency. If bonds are held in an Isa, the income paid is tax-free. But dividends paid on shares are taxed. They benefit from a 10 per cent tax credit, but this will be abolished next April.

Mr Dampier admits that buying individual shares may not be the ideal way to secure a decent income; it can be expensive and time consuming. “If you are going to get a decent spread of investments, you need to buy at least 30 shares,” he says. In order to build up a decent holding in each, you will need to invest a fairly large amount overall.

Managing a shares portfolio also requires considerable research. Older investors who would prefer more leisurely pursuits than poring over balance sheets and monitoring market movements might be better off considering equity income unit trusts, which offer the prospect of capital growth and a decent yield. The average UK equity income fund now yields about 4.3 per cent.

Unit trusts might be more appropriate if only one partner deals with a couple’s affairs. “In some couples, the husband deals with all the finances. In many cases, widows are left with a share portfolio they have no idea what to do with. Inheriting a unit trust is much simpler,” Mr Dampier says.

LINKS

Hargreaves Lansdown: 0117-900 9000, www.hargreaveslansdown.co.uk; Kohn Cougar: 0117-946 6384, www. kohncougar.co.uk