Investing by the Decade

Josh Smith

When it comes to investing in your future, it’s not how much money that matters the most, it’s how old you are. Obviously the younger you start investing the better, but if you invest in an age-appropriate manner you can make smart investing choices easily and most importantly balance growth with security.

If you want to get specific, you can go to your bank’s (or other financial services provider’s) website and look into financial planning; but for basic allocation you can subtract your age from 110 to find out how much of your portfolio should be in stocks and how much should be in bonds. You may hear different numbers to subtract from as the number changes from 100 to 110 depending who you ask, but keep in mind this is just the start, not the end of your financial planning. If you want to be more aggressive add 10 years, if moderation is your style then subtract 10.

This means that if you are 30 you should invest 80% of your portfolio in stocks and the rest in bonds. The best part about this rule is that you’ll be able to adjust your investment in the right direction as you age without a ton of thought and research.

Investing in your 20’s: Don’t be reckless, but now is the time you can afford to take a risk on your investments. It’s a fun time to take some money outside of your 401k and invest in the stock market. It’s a great time to live cheap and start to garner some savings.

Investing in your 30’s: When your 30’s arrive, take stock of your life situation and how it has changed. If you are starting or planning a family, this could be a good time to start looking at a 529 plan. This also is a good time to make sure you’ve said farewell to high interest debt.

Investing in your 40’s: Enjoy this time. You are probably near the peak of your earning potential and have more income than expenses which means you can invest more. This is also a good time to take stock of how much you think you will need when you retire and a reminder to make sure you aren’t taking as many risks as you did in your 20’s. Now may be a good time to sell some stocks that have done well and invest elsewhere.

Investing in your 50’s: With the goal in sight, you may want to start sprinting, but make sure you pick up the pace in a smart manner so you don’t collapse before the finish line. Rather than taking riskier investments, look into catch-up contributions to your 401k which can help you get ready for retirement. These contributions may not seem like much, but you still have 10 to 15 years for them to grow. Most of all make sure you are investing appropriately. Too many people 50 and older lost big during the recent downturn thanks to poor asset allocation.

As always, your financial situation is different than the next person’s which means that you can benefit greatly from expert advice. If you have an employer provided 401k, ask your HR rep or the company handling the investments for free advice. Many times the company will offer free in-person consulting two to three times a year which can help you find the right mix for your age and life situation.