Best Ways To Invest by Age: Tips for All Generations
Written by
Yaël Bizouati-Kennedy
Edited by
Chris Cluff
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The way you invest your money will vary depending on your age, as it affects the levels of risk you can take, the amounts you can spare and your priorities.
While there are no simple answers as to how to go about it, there are general rules that can guide you and make the process more straightforward as well as serve as a framework to help you make the right decisions.
Gen Z: Use the Power of Compounding
The enormous advantage for younger investors is that time is on their side. In turn, they have more leeway when it comes to taking on more risk.
Another advantage of their longer time horizon is that investing regularly and often are wise strategies to take advantage of the power of compounding, which Albert Einstein is said to have called “the most powerful force in the universe,” said Andrew Crowell, financial advisor and vice chairman of wealth management at D.A. Davidson.
Considering making Roth IRA contributions rather than traditional pre-tax IRA contributions can be an effective strategy to significantly grow retirement savings, Crowell added.
Millennials: Focus on Systematic Investing
Millennials experience lots of firsts. Whether it’s a first job, a marriage, the birth of a child, the purchase of a home or paying off student loans, this is a time in life when incomes generally have not yet peaked but expenses are mounting, Crowell said.
In turn, the best strategies for balancing both realities are to create a budget and continue funding 401(k) plans to take advantage of any matching and to limit debt as much as possible.
In addition, starting a 529 Plan for a child at birth can help grow a college fund tax free, Crowell added.
“Systematic investing out of each paycheck into a retirement account — even if you can’t save the maximum allowable — will ensure that the power of compounding goes to work,” he said.
Gen X: Maximize Peak Earning Years
Gen X Americans, the so-called “sandwich generation,” have a lot on their financial plates. Most of them are both caring for an aging parent and taking care of their own children, while also taking care of themselves.
Yet, they are likely to be at the peak earning years. As such, they should seek to maximize their contributions to their 401(k) plans each year, said Crowell, adding that this includes the additional catch-up contributions for those over age 50.
“As there are a limited number of paychecks left,” he said, “Gen Xers should be gradually reducing risk in their portfolio and at the same time trying to pay down/off any liabilities like a mortgage, credit cards or car payments. Reducing or eliminating debt prior to retirement can provide greater peace of mind and financial flexibility in one’s golden years.”
According to Andrew Boyd, managing director at Finty, people in their 50s and 60s should focus on preserving wealth and preparing for retirement.
“Gradually shift your portfolio towards more conservative investments like bonds and dividend-paying stocks,” Boyd said. “It’s also essential to have a clear plan for your retirement income and to ensure you have an emergency fund.”
Boomers: Diversify and Rebalance
While it is always dangerous to generalize, boomers are in or entering their retirement years, which means their “accumulation phase” is now transitioning to a “distribution phase,” Crowell said.
In turn, they should have an investment portfolio that is constructed to withstand whatever “weather” the financial markets deliver.
“Diversification is critical,” Crowell said, “and rebalancing regularly to target allocations is important.”
Investing Depending on Your Experience
First off, for newbie investors, it’s essential to start by understanding the basics of investing and building a diversified portfolio that can withstand market volatility.
As such, investing in low-cost index funds and ETFs can be a smart way to start, as these provide broad exposure to the market and are less risky than individual stocks, said Boris Dorfman, fund manager at LBC Capital Income Fund.
Intermediate investors also might want to consider investment options such as individual stocks or bonds, to diversify their portfolios further.
“They should also prioritize regularly reviewing and rebalancing their portfolios to ensure they are aligned with their financial goals,” Dorfman said.
Finally, for experienced investors, there are more advanced investment strategies to consider, such as options trading, alternative investments or real estate investing.
“Real estate investing, in particular, can provide significant opportunities for growth and diversification,” Dorfman said, “as real estate values tend to appreciate over time, and rental income can provide stable cash flow.”
Ultimately, Dorfman said, it’s important to remember that investing is a personal decision that should be tailored to your specific financial goals and risk tolerance.
He added, “Seek advice from a trusted financial advisor and do your own research before making any investment decisions.”
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