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 to take advantage of the 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 investments you can 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.

Benefits
  • Earnings compounded over decades can add up.

  • Diversified portfolios have lower risk long-term.

  • Investing helps promote fiscal discipline.

  • Retirement goals can be something to strive for.

Risks
  • Investing diverts a portion of earnings, which can be tough 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.

  • Watching the market 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 as much because you have years to recoup any losses. So, if your stomach can handle the volatility of stock prices, now’s the time to invest aggressively.

  • Workplace 401(k) or 403(b): Many employees enjoy matching contributions from their employers for investments 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 $6,000 in after-tax dollars, or $7,000 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 if you withdraw the funds in retirement. 
  • A stock-heavy portfolio: Historically, long-term stock investments have beaten those of bonds and cash. From 1928 through 2020, the S&P 500 returned an annualized 10%, the 10-year Treasury bond earned 5% per year and the 3-month Treasury bill (a cash proxy) yielded 3.35%. While bonds are more stable, their returns likely won’t beat stocks if you’re looking to multiply your money over the long term. So, if you’re relatively risk-tolerant, you can invest a large portion of your portfolio in stock funds and the remainder in bond and cash investments. Or, if you want to go the easy route, simply choose a target-date mutual fund. These funds are automatically rebalanced as you age, starting out more aggressive when you’re younger and becoming more conservative as you move closer to retirement.
  • Real estate: You might purchase a home, especially if you think you’ll stay put for at least five years. You also could consider investing in a rental property or REIT. Low interest rates can make buying real estate especially attractive if you don't live in a costly housing market, such as New York City or San Francisco.
  • Yourself: Your 30s are a great time to get an advanced degree or bulk up your work skills. If you can increase your salary in your 30s and start saving more, you’ll still have decades to compound your earnings.

The Best Investments for Your 40s

If you’re late to the saving and investing party, you can catch up by putting the pedal to the metal and making some lifestyle trade-offs.

  • Workplace 401(k) or 403(b): Supercharge your saving and investing to prepare for retirement. If you haven’t begun saving in your employer’s retirement plan, start now. If you’ve been investing in the 401(k), strive to invest the maximum of $19,500 per year. If you start at age 40 and hit the max $19,500 annual target, then with a 6% annual return, by age 64 you could 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 is a very good starting point.
  • Asset allocation: Asset allocation in your 40s may 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. A more aggressive investor in their 40s might be comfortable with an 80% stock allocation. Just remember, the more stock holdings you have, the more volatile your investment portfolio and the greater your exposure to risk.

You can include broadly diversified international stock funds and REITs in your investment mix, too.

Sticking with low-fee index funds is one way to 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 closer to your retirement date, you’ll probably dial back your stock fund exposure and increase the allocation of your portfolio to bonds and cash.

The specific percentages will be determined by when you anticipate dipping into your investments and how much. If you expect to retire at age 67, which is the earliest you can receive full Social Security benefits, 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 may be 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 will be dictated by the progress you’re making towards your financial goals. Start saving and investing as early as possible to secure your financial tomorrow.

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.

Article Sources

  1. Internal Revenue Service. "Retirement Topics - IRA Contribution Limits." Accessed Jan. 10, 2021.

  2. Internal Revenue Service. "401(k) Plan Overview." Accessed Jan. 10, 2021.

  3. Internal Revenue Service. "Traditional and Roth IRAs." Accessed Jan. 10, 2021.

  4. New York University. "Historical Returns on Stocks, Bonds and Bills: 1928-2020." Accessed Jan. 10, 2021.

  5. Internal Revenue Service. "Retirement Topics - 401(k) and Profit-Sharing Plan Contribution Limits." Accessed Jan. 10, 2021.

  6. Social Security Administration. "Retirement Benefits," Page 3. Accessed Jan. 10, 2021.