Here’s How You Should Invest at Every Age

What Should Your Portfolio Look Like in Your 30s, 40s, and 50s?

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How you invest can depend a lot on your age, and your portfolio could look significantly different depending on where you are in life. Start investing as soon as you can and you’ll enjoy time’s magical power of compounding.

The younger you are when you begin investing, the more time you have for your initial investments to grow and increase your personal wealth. There are certain investments you should make during each decade of your adult life to take advantage of the power of time.

Saving for retirement—especially starting at an early age—is a good idea and almost always beneficial. However, investing does come with risks that are important to understand.

  • Earnings compounded over decades can add up to millions.

  • Diversified portfolios have limited risk long-term.

  • It helps promote fiscal discipline.

  • Retirement goals can be one more thing to strive for.

  • It cuts into earnings, especially for younger, lower-wage workers.

  • Aggressive investing can lead to huge losses in bear markets.

  • It can be difficult to appreciate value that might be decades away.

  • It can be stressful for risk-averse investors.

The Best Investments for Your 30s

If you’re in your 30s, you have 30 years or more to profit from the investment markets before you are likely to retire. Temporary declines in stock prices won’t hurt you much because you have years to recoup any losses. So, if your stomach can handle the stock price volatility, now’s the time to invest aggressively.

  • Workplace 401(k) or 403(b): Most employees enjoy matching contributions from their employers for any investment into this account. That’s free money! Aim to contribute 10-15% of your salary now to set yourself up for a secure financial future.
  • Roth IRA: If you don’t have a 401(k), or you want to contribute additional money for retirement, check out the tax-advantaged Roth IRA. If you meet certain income guidelines, you can invest up to $5,500 in after-tax dollars, or $6,500 if you're older than 50. The advantage of the Roth is that the money grows tax-deferred and unlike the 401(k), you won’t owe any taxes when you withdraw the funds in retirement.
  • Mostly Stock Funds, With Some Bonds: Long-term stock investments have beaten those of bonds and cash. From 1928 through 2016, the S&P 500 returned an annual average of 9.53%, the 10-year Treasury bond earned 4.91% per year and the 3-month Treasury bill (a cash proxy) yielded 3.42%. While bonds are more stable, you won’t beat stocks if you’re looking to multiply your money over the long-term. So, if you’re relatively risk-tolerant, you should invest 70-85% in stock funds and the remainder in bond and cash investments. Or, if you want to go the easy route, choose a target date mutual fund and your assets will start out more aggressive when you’re younger and automatically become more conservative as you move closer to retirement.
  • Real Estate: You might invest in a home if you think you’ll stay put for at least five years. You also could consider investing in a rental property or REIT fund. With the low current interest rates, if you’re not in one of the major over-priced real estate markets like New York or San Francisco, it can make good personal and financial sense to buy real estate.
  • Invest in Yourself: Your 30s are a great time to get that advanced degree or bulk up your work skills. If you can increase your salary in your 30s and start saving more, you’ll have decades to compound your earnings.

The Best Investments for Your 40s

If you’re late to the saving and investing party, now’s the time to put the pedal to the metal and make those lifestyle trade-offs. After all, you don’t want a future in your kids’ basement, do you?

  • Workplace 401(k) or 403(b): Supercharge your saving and investing to prepare for retirement. If you haven’t yet saved in your employer’s retirement plan, start now. If you’ve been investing in the 401(k), strive to invest the maximum $18,000 per year. If you start at age 40 and hit the max $18,000 annual target, then with a 6% annual return, by age 67 you’ll reach a million-dollar nest egg. That may not be enough to retire on once inflation and longer lifespans are taken into account, but $1 million dollars is a very good starting point.
  • Asset Allocation: Asset allocation in your 40s should lean slightly more toward lower-risk bonds and fixed investments than in your 30s, although the ratio of stock investments to bond investments varies depending on your risk comfort level. The conservative, risk-averse investor might be comfortable with a 60% stock and 40% bond allocation. The more aggressive investor in their 40s might be OK with a 70-80% stock allocation. Just remember, the more stock holdings you have, the more volatile your investment portfolio.

Be sure to include broadly diversified international stock funds and REITs in your investment mix. And sticking with low-fee index funds will keep your investing costs in check.

The Best Investments for Your 50s

Now it’s time to examine your future goals and explore your current and desired future lifestyle. Investigate your current income, projected income, and tax situation. The results of your analysis will influence the best investments in your 50s.

If you’re on track for retirement, then keep on doing what you began in earlier decades. As you edge up to your retirement date, you’ll tend to dial back your stock fund exposure and increase the allocation of your portfolio to bonds and cash.

The specific percentages will be determined by how much and when you anticipate dipping into your investments. If you expect to retire at 67 and receive Social Security and other income sources, you might delay spending your investments. In that case, you can be a bit more aggressive with your investing in your 50s. If not, 60% stock investments and 40% bonds is a good mix for most investors.

  • Additional Income Streams: Investigate creating income streams from your investments. Shift some of your investments into higher dividend-paying stock and bond funds. Consider REITs with juicier dividend payments as well. That way, you can structure your portfolio to generate some spending money in retirement.

Ultimately, how you invest in each decade is dictated by the progress you’re making towards your financial goals. Start saving and investing as early as possible to secure your financial tomorrow.

Barbara A. Friedberg is a former portfolio manager and university investments instructor. Her writing appears on various websites including Robo-Advisor and Barbara Friedberg Personal Finance.

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.