There's a big difference between investing in your 30s, and investing in retirement. Foremost among them is your time horizon. When you are young, you can handle volatility in the market by ignoring short-term moves. You won't be touching your nest egg for decades. But in retirement, you'll consistently be drawing money out of your accounts, and where your stocks stand when you need to sell shares will matter a great deal.
This means that an overexposure to risky stocks in old age can lead to lasting losses. Nobody wants that.
Below, I've highlighted three stocks that I think retirees should avoid at all costs. I chose them because they're relatively popular among Foolish readers -- each is among the 200 most-rated companies, according to our CAPS system. But more importantly, they are inherently risky stocks that have huge downside potential.
It may be tempting to take a flier on Sears (OTC:SHLDQ). The company was an integral part of the commercial scene as many current retirees were coming of age, and its numbers have actually come in ahead of expectations over the last few quarters. Any signs of a sustained turnaround could send shares flying.
But don't believe the (relative) optimism. Sears is a terrible place to work, according to Glassdoor.com: Only one-third of employees would recommend working there to a friend, and CEO Eddie Lampert has an approval rating of just 20%. Earnings have come in ahead of expectations primarily because Lampert is selling off real-estate, providing a short-term boost, but that's no basis for a long-term turnaround.
And when it comes to same-store sales -- the core measure of any retailer's performance -- Sears domestic locations are doing abysmally, down 9.2% last year, and they have been shrinking for the past five years.
This company makes the chips that allow electronic devices to detect how they're moving through space. The first well-known application of InvenSense's (NYSE:INVN) tech was in Nintendo and its Wii controllers. Since then, applications for its chips have ballooned, with the most prominent being in smartphones.
With such a huge market, you'd think that InvenSense would be a great performer. But that's not the case: The stock is down more than 70% since hitting an all-time high in 2014. The twin culprits are competition and a tenuous relationship with Apple, which supplied 47% of its revenue last quarter.
As the technology it specializes in has become commoditized, gross margins have contracted from 53.1% in 2013 to 41.9% last year. And the company's decision to agree to less-favorable terms in order to win inclusion in Apple's iPhones haven't been paying off as well as investors had hoped. With Intel likely to entering the segment too, the future is very cloudy for InvenSense.
The 3-D printing stock bubble deflated in a huge way starting in 2014. Between January of that year, and the end of 2015, 3D Systems (NYSE:DDD) saw its share price fall 90%. More than a decade of following a growth-via-acquisition strategy came back to bite the company as demand for 3-D printers dried up, and cultural mismatches between the companies it bought began to surface.
This year, under new leadership, however, the stock has enjoyed a nice rebound. Shares are up 66% -- not necessarily on great financial results, but on results that just weren't nearly as bad as analysts had expected. While I think that management is being very smart in exiting the consumer business and focusing on industrial and business clients -- and I'm reassured by the company's solid balance sheet with no long-term debt -- I fail to see where 3D Systems has any sustainable competitive advantage.
3-D printing has huge potential to grow in the coming decades. But the industry is likely to be disrupted -- many times -- by upstarts that find new way to print things better, faster, and with an ever-growing array of materials. There's simply no way to know who 3D Systems competition will even be -- and that scares me. Retired investors would be better off putting their money elsewhere.