Manage Money

Investing by Age

If you are planning to build your retirement savings, you have to know how to invest. After all, it is only when you save and invest over the years before retirement from your job that you can get a big-enough egg nest retirement fund.

It is also essential to know that the same investment strategies are not suited all your life. What works in your 20s won’t work in your 40s. How you invest at each age determines the success of your retirement. 

Asset allocation

Before you even start to think about investing, it is important to understand the concept of Asset Allocation. In investing, there are various classes of assets like: 

  • Stocks

  • Bonds

  • Cash and equivalents

  • Commodities

  • Real estate

  • Futures and various other derivatives

Each of these asset classes have different levels of risk and reward in returns. These behave differently over time, depending on the economy and several other factors. For instance when the economy is booming, you have confident investors who withdraw money from the bond market and invest in stocks where there is a likelihood of higher profits. The opposite is true when the economy is not good. Generally, bonds and stocks are negatively correlated, but during any financial crisis it is not the case. However, generally, bonds help in the volatility of the stock market.

If you put all your money in one asset class, you’ll lose everything when this asset faces a loss. This is why everyone says one needs to diversify one’s investment portfolio. Diversification enables you to save money in case one asset class fails or goes through a loss. For instance, even if you lose on stocks, you may not have too many problems since most of your savings are on mutual funds and bonds. Asset Allocation is the arrangement of allocation of assets in your financial portfolio. Depending on your age and the number of years you’ve been doing investing, asset allocation can look quite different.

Asset allocation by age

Here is a suggestion of asset allocation through one’s various life stages. Remember, these are suggestions and recommendations only. Your investment decisions shall still depend on your age and circumstances. It’ll also depend on your risk appetite. 

A financial advisor can help you considerably, as can online brokers. 

Regardless of your age, you should first have 6-12 month’s living expenses saved in the money market, savings account and liquid Certificate of Deposit.

Investing during your 20s

Suggested asset allocation:

  1. Stocks: 80-90%

  2. Bonds: 10-20%

Even after graduating from college, you may still be paying off your student loans. This is a good time to start investing. This can be through a Provident Fund, a Savings Account, or something else. Save what you can, even if it is 10% of what you earn. If you start investing now, you’ll have a huge advantage over those who start investing later. And a lot of people do so. This is also a good time to go for aggressive investment strategies.
Invest what you can, even if it is 10% of what you earn.

Investing in your 30s

Suggested asset allocation:

  1. Stocks: 70-80%

  2. Bonds: 20-30%

If you haven’t started investing in your 20s, this is the best time to do so. This is the time you are or already have established your career. You are still comparatively young to reap all the rewards of compound interest, but still are old enough to be investing a meagre 10-15% of your income.

Contributing to your retirement fund should be a top priority now, regardless of what loans and credit card debts you may have now. You still have at least 40 years of working life left, so make this time count. You can be somewhat aggressive in your investment, but it’ll pay to be play it safe now. Buy bonds for safety.

Investing in your 40s

Suggested asset allocation:

  1. Stocks: 60-70%

  2. Bonds: 30-40%

If this is the time you’re starting your investment at, it is high time to get serious about it. If you started already in your 20s and 30s, it is now time to consolidate and deepen your financial portfolio since during this time you are earning the most you will in your life. To beat inflation, invest in aggressive stocks, but always take advice from a financial advisor.

Investing in your 50s and 60s

Suggested asset allocation:

  1. Stocks: 50-60%

  2. Bonds: 40-50%

You are getting quite close to your retirement age, and so don’t lose focus now. This is also the time to make conservative investments. Switch to stable and low-earning funds since these come with less risk.

Investing at your 70s and 80s

Suggested asset allocation: 

  1. Stocks: 30-50%

  2. Bonds: 50-70%

You’ll be retired soon, if you’re not already. This is the time to focus on income during retirement. However, don’t start withdrawing all your savings. For investing, focus on those stocks that give dividend income. 

In conclusion

The earlier you begin, the more you can save up by your retirement. However, attitude is important too. It’s never too late to begin something just because you haven’t already!


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