How to invest at any age
In addition to saving for a down payment or setting aside money for college, retirement planning tops the list of investment priorities for most Americans. But the strategies that make the most sense when you’re 25: Take a chance! Focus on the actions! – doesn’t necessarily make sense when you get into your 30s and 40s. That’s why it’s a good idea to know how to invest at any age.
Volatility in the economy and changes in the typical career path can also affect when you can start saving. If you spend most of your 20s working to pay off student loans, for example, or just entered the job market in your 30s or 40s, you’ll need a different approach to investing than someone with a more typical resume.
As a serial entrepreneur who has worked in a salaried position and now writes about day-to-day transactions, I appreciate the complexities of managing your money. Below are my suggestions for what to consider when investing, regardless of your age.
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invest in your 20s
It’s never too early to focus on retirement. Even if it’s just a nominal sum, get in the habit of setting aside a portion of your income each month. You will want to deposit these funds into a specific retirement savings account for this purpose, either a 401(k) or a individual retirement account (IRA).
If you are a student or self-employed, you can open an IRA on your own through a bank, licensed brokerage firm, or robotic advisor. If you’re employed, check to see if your company automatically enrolled you in its 401(k) plan, and if not, fill out the necessary paperwork to enroll. Be sure to review the different account types and investment options available, as well as the company’s policy on matching your contributions.
Once you’ve opened a retirement savings account and started making contributions, think about other ways to start growing your wealth. Opening a brokerage account allows you to start investing in stocks or other securities, such as mutual funds or exchange-traded funds (ETFs), as well as bonds. You can do it alone or with the help of a robo advisor. These sophisticated algorithms will manage your investments for a lower fee than a human advisor.
If you have the choice, you may prefer work with a certified financial planner to develop an investment strategy that matches your risk tolerance. At this age, you should feel comfortable taking on greater risks than you might later in life, since you have plenty of time to see your investments recoup the losses.
Focus on your career and adjust your savings plan as your income increases. Don’t wait to start saving until you reach a certain income level. Even $50 a month is important when you’re trying to develop the habit of investing, but be sure to adjust your contributions to match your income level.
invest in your 30s
If you haven’t had the opportunity to open a retirement account yet, now is the time. If you have a 401(k) or IRA, try to make the maximum annual contribution. This literally doubles if you’re eligible for matching contributions from your employer. Are you already making the maximum annual contribution? Consider supplementing your retirement funds with a Roth IRA.
This is also a good time to diversify your investments. The best way to do this is by investing in a index fund. Even better, invest in a few different index funds with different levels of risk. You should also start buying bonds, if you haven’t already, to balance out the risk of stocks.
If you like to investigate fund performance, you can do it yourself for free. Otherwise, certified financial planners can help you design an investment strategy or manage your investment for an annual fee. If you’re not completely sure of your investment skills but don’t want to bear the cost of an adviser’s fee, you might consider an automated adviser.
That being said, don’t put all your focus on retirement. If you have children, you will also want to think about college planning. People who plan to own a home will also want to explore savings strategies like high-yield accounts to help build their down payment. As your income increases, think about how you can best prioritize your savings strategy to meet your family’s future needs.
Invest in your 40
At this stage in your life, you probably have at least one retirement account in your name. However, if he has frequently changed jobs or opened a separate IRA, he may have multiple “pools” of money managed by different entities. Consolidating these accounts will help you avoid excessive administrative fees and give you a clearer picture of his progress toward his savings goals.
Roll over your 401(k) to an IRA it can also protect you from high tax bills and make it easier to diversify your portfolio. While a 401(k) limits your options to those provided by the administrator, an IRA gives you access to a broader selection of instruments.
In particular, you’ll want to consider a Roth IRA. Although most people associate this account with younger investors, it also has benefits for those further along in life. Roth IRAs give you more time to grow your wealth—you don’t have to start taking distributions at age 70, and you can continue making contributions at any age if you’re still earning income. If you suspect you might need access to some of your money before age 59, the Roth IRA isn’t subject to the same early withdrawal penalties and taxes as a traditional account.
If you’ve been concentrating entirely on saving money without investing, consider whether this strategy will help you reach your retirement goals. It may be time to start looking at different types of funds and securities to make your money work harder. You don’t want to take significant risk at this stage of your life, but sensible exposure through a mutual fund or index fund can go a long way toward improving your quality of life later.
For those just starting to save, you can make up for lost time by choosing the right asset allocation. In this case, we suggest working with an investment advisor to identify the right mix of high-yield stocks mixed with bonds. A robo-advisor can also do this job, but since you don’t have time to make mistakes, it’s worth investing in an experienced professional.
Invest in your 50
Missed your savings goals earlier in life? not fear. That is completely normal and easy to deal with. Starting at age 50, you are eligible to do more “catch-up” contributions to a 401(k), and increases the maximum contribution to an IRA. Even an extra $100 a month can significantly increase your retirement income.
If at 30 and 40 it was about expanding your investment portfolio, at 50 it is about refining it. As your early withdrawal date approaches, you may want to adjust your investments to reflect lower risk appetite. You’ll also want to take a good look at the specific types of investments in your portfolio to ensure a balanced portfolio.