While you should always be investing regardless of your age, the specific investments you choose will generally shift as you age. Whether you’re just starting out in the working world, getting a promotion, having kids, buying a house or getting married, these major life events can all shift how you invest. Your age itself is also an important variable, as the older you get, the less time you have to recover from any market downturns.
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Just remember that regardless of your age, you should always choose a portfolio that’s appropriate for your own personal investment objectives and risk tolerance, preferably in conjunction with a financial advisor. Here’s a look at the most important investments to consider during different decades of your life.
- Growth stocks
Your 20s are the time to have the most aggressive portfolio of your life. Since you have decades until retirement and may very well live for another 50 years or more, you have time to bounce back from any bear markets. As volatile as the stock market may seem, over the long run, those day-to-day movements smooth out dramatically. In fact, there has never been a 20-year period where the stock market had a negative return, so your chances of losing money when investing in the overall market in your 20s is low. Just bear in mind that “aggressive” does not necessarily mean “speculative.” If you put all your assets into cryptocurrency, junk bonds and penny stocks, you may very well lose all you have. But a solid portfolio of index funds and quality growth stocks should serve you well in your 20s.
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- Real estate
When you reach your 30s, it’s a good time to start thinking about real estate as an investment. For most Americans, this will mean buying your own home. If you have been doing a good job with your financial management, after 10 years or more in the workforce you have likely built up a decent income and a good credit score, two things that are imperative when it comes to qualifying for a good mortgage. Many Americans also think about starting a family in their 30s, and some may have already begun, so it’s a good time to set down some roots and establish a home base for your family. Buying a home in your 30s is also a good way to build long-term equity, as you’ll likely be mortgage-free by the time you retire.
- Educational savings
Your 40s is a good time to focus on educational savings. While you can never start too early when it comes to investing in your kids’ education, in your 40s, your kids are likely to be teenagers or close to it, and college costs are about to become a real, tangible thing. At this stage, you can get a reasonably good estimate as to how much college will actually cost, and you can start directing your investments toward that goal. Plus, you may be able to take advantage of a state tax deduction by contributing to an educational savings plan like 529.
For a number of reasons, your 50s is the time to start really amping up your retirement savings accounts. Although you hopefully opened a 401(k) or IRA in your 20s or 30s, this is the time to maximize your contributions. For starters, you’re likely at your peak earnings level, so you’ll be able to sock more away without it affecting your lifestyle. Second, once you reach age 50, you’re allowed to make “catch-up” contributions to your retirement plans. For 2022, you can contribute an extra $1,000 to your IRAs, for a total of $7,000 in any given year. But if you have a 401(k) plan, you can kick in an extra $6,500, for a total of $27,000 per year. If you earn enough money to be able to do it, this means you can put $270,000 in your 401(k) plan from age 50 to 60, which can provide a huge boost to your retirement nest egg.
- Annuities and insurance
Once you reach your 60s, it’s time to start working on your retirement income distribution plan. Factor in your estimated account balances at the time you retire, along with your estimated Social Security payouts, which you can get directly from the Social Security Administration. At this point, you might consider investing in income protection products like annuities or insurance. These investments can guarantee lifetime income and provide some peace of mind that you won’t outlive your investments. As insurance, annuity and estate planning can get complicated, it’s a good idea to speak with an estate planning attorney and/or a life planning financial specialist.
70s and On
- Safe, income-generating investments
Once you reach your 70s, it’s time to take your foot off the gas when it comes to your investments. Although you may still live for decades more and should always maintain some type of growth in your portfolio, at this stage of the game you should focus on the income that your investments can provide. Safety should also be a priority, as you won’t have much time to recover from severe losses in your portfolio. For that reason, this is a time to take a good look at investments like Treasury bills, savings accounts and short-term bonds. For the growth portion of your account, avoid anything remotely speculative and stick instead to quality, high-paying dividend growth stocks.
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