You’re never too young or too old to start investing. If you’re interested in building wealth, you should consider investing. Your investment strategy will vary based on your age, though, so it’s important to take that into consideration.
The greatest advantage in investing is time, so the earlier you start, the better. If you didn’t start early, don’t get discouraged though. You will just have different goals and a different strategy if you’re starting later in life.
Keep reading to learn more about investment strategies by age and how to go about getting started.
Investment Strategies by Age
If you can start investing early, you will be in great shape when it comes time to retire. When you invest early and have plenty of time before you retire, you will have the benefit of compounding.
Compound interest is basically “interest on the interest” so the earlier you invest, the more you invest, and the more you earn, the more successful you are.
How you actually invest will depend on your age and the investment portfolio of someone in their 30s is going to look much different than someone in their 50s. Here is how you should invest during each decade of your life.
Investing in Your 30s: Invest Aggressively
When you start investing in your 30s, you have about 30 years to build your investment portfolio before you retire.
You can afford to be riskier in your investments since any declines or fluctuations in stock prices won’t hurt you too much. You’ll have time to recoup any losses and you can take chances, like investing in cannabis. If you’re on your 30s and you wanna learn more about investing in cannabis, check out the National Institue for Cannabis Investors, or NICI.
Invest in Retirement
Take advantage of any investment accounts offered by your employer. A 401(k) or 403(b) is offered by your employer and they often contribute to it. Contribute as much as you can especially if your employer matches your contributions.
You can also invest in a Roth IRA if your employer doesn’t offer a 401(k) or if you want to contribute additional money. Contributions to a Roth IRA are post-tax, so you won’t owe any taxes when you withdraw the money for retirement.
Invest in Stocks and Some Bonds
If you want to build wealth over time, the stock market is the way to go. Over time, stocks have higher returns than bonds. Your investment portfolio should be 70-85% stocks in your 30s, with the rest invested in cash and bonds.
If you want to take the easy way, you can pick a target retirement date mutual fund. Your investments will start out aggressively and as you age, they will become more conservative the closer you get to retirement.
Invest in Real Estate
Interest rates are pretty low right now, so investing in real estate is a smart move in your 30s. You might consider buying a home or an investment property. A mortgage is often less expensive than rent, so this might make financial sense for you in your 30s.
Investing in Your 40s: Dial Back the Risk
If you don’t start investing until your 40s, it’s not ideal, but you can still make up for lost time. Since you’re getting closer to retirement in your 40s, you shouldn’t take as many risks as you could in your 30s.
Invest in Retirement
Continue contributing to your 401(k) or 403(b) or start contributing to one if your employer offers it. Try to invest the maximum of $18,000 per year.
If you start contributing at age 40 and max out at $18,000 a year and assume a 6% annual return, you’ll have a million dollars for retirement by age 67.
Where Should You Allocate Your Assets In Your 40s?
In your 30s, it was all about stocks, but in your 40s, your investment portfolio should be moving more towards bonds and fixed investments.
The ratio of stocks to bonds varies based on how comfortable you are with risk. If you are more conservative and averse to risk, your portfolio might be 60% stocks and 40% bonds. If you’re more aggressive, 70-80% of your portfolio might be stocks.
The key thing to remember is that more of your assets you have allocated to stocks, the more volatile your investment portfolio is.
Investing in Your 50s:
In your 50s, you’re getting closer to retirement, so it’s time to really think about your future goals.
There isn’t a one-size-fits-all investment strategy in your 50s. You should evaluate your income, your projected incomes, and your tax status. This information will dictate the best investments for this decade of your life.
If you’re on track for retirement, stay the course. The closer you get to retirement, the less risky your investments should be. Your investment portfolio will still be a mix of stocks and bonds, but the amount of your assets allocated to stocks will be less.
You should also determine whether you will take social security, how long you plan to work, and any other income streams you might have. This information will also dictate your investment strategy and how risk you can be in your 50s.
The Bottom Line
Investing early and often is your best strategy for setting yourself up for retirement. However, how you invest in your 30s is not how you should invest in your 50s.
Now that you have a better idea of your investment strategy by age, it’s time to start thinking ahead. Maximize your investments now and reap the benefits later. Don’t forget about risk management.
For more tips and tricks for investing, check out our blog.