Just as you evolve throughout your career and into retirement, your investment decisions should as well. If you’re taking the same risky investment approach at age 60 as you did at 25, it’s time to pump the breaks. And for those who are too conservative with decades left until retirement, you could easily be leaving money on the table. As you age, it’s important to remember how your age should impact your investment decisions.
Why Age Affects Investments
Generally speaking, the younger you are, the riskier your investment portfolio can be. The reason being, that the younger a person is, the more time they have to recover and recoup any losses from things like a sudden market downturn. Someone who's a few years away from retirement, however, won’t have the necessary time it often takes to recover from a plunge in the markets. Instead, if their portfolio relied too heavily on stocks, their retirement strategy could be jeopardized by needing to withdraw cash while the market is down. They may never recoup their losses and could easily drain their other resources while trying to accommodate for this loss of income.
Investing At Various Ages
Along with risk tolerance, your age should be a large deciding factor in what and how much you decide to invest in. For example, the higher the percentage of stocks you invest in, the more volatile your portfolio is going to be. In general, you’ll want to dial down the risk and focus on more steady sources of income as you get closer and closer to retirement.
Investing In Your 20s and 30s
After gaining some stability in your life and career, you may be ready to move your money out of a savings account and into a more active role through investments. With 30-plus years ahead of you before retirement, now’s the time to focus aggressively on growth. For those planning on retiring at least 30 years out (past your 50s), it’s common to have between 70 and 100 percent of your portfolio in stocks. During your 20s and 30s, other common investment options include real estate (if you plan on living in one place for more than five years), employer 401(k) plans and/or IRAs.
Investing In Your 40s
As you’re inching closer to those peak earning years, your 40s can be an opportune time to double down on steadier investment options. If your employer offers contribution matches to 401(k) plans, contributing the maximum amount now could create a promising payout through retirement. In general, how you invest in your 40s will vary greatly on the types of investment options (if any) were made in your younger years, how close you are to retiring and your risk tolerance. In general, most people begin shifting their asset allocation to a more conservative strategy in their forties, with stock allocations closer to 60 or 80 percent.
Investing In Your 50s
How you choose to invest in your fifties will greatly depend on how your current financial picture aligns with your upcoming retirement goals. Take a look at your current income level, nest egg, taxes and projected retirement income. This could help determine how aggressive your portfolio should remain throughout your 50s. Why? Because now’s the time to focus on creating income for you and your spouse throughout retirement. Depending on when you plan to retire, today’s 50-year-old man is expected to live an additional 31.5 years, while women can expect an additional 34.9 years.1 Incorporating an appropriate amount of risk into your portfolio can help you and your spouse prepare for these upcoming years without income.
While how you should invest throughout your career can be based on a number of factors, it’s always important to take your age and proximity to retirement into account. As you’re analyzing your portfolio’s asset allocation, remember to diversify and protect your future retirement income from untimely market downturns. Doing so can create peace of mind for you and your spouse as you get nearer and nearer to retirement age.
Legal Information and Disclosures
This memorandum expresses the views of the authors as of the date indicated and such views are subject to change without notice. Samara has no duty or obligation to update the information contained herein. Further, Samara makes no representation, and it should not be assumed, that past investment performance is an indication of future results. Moreover, wherever there is the potential for profit there is also the possibility of loss.
This memorandum is being made available for educational purposes only and should not be used for any other purpose. The information contained herein does not constitute and should not be construed as an offering of advisory services or an offer to sell or solicitation to buy any securities or related financial instruments in any jurisdiction. Certain information contained herein concerning economic trends and performance is based on or derived from information provided by independent third-party sources. Samara Capital (“Samara”) believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based.
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