Save from as low as €40 per month
Change modify pause
The investment choices you make throughout your life will often greatly depend on your age. In fact, your portfolio may look significantly different in your 20s than it does in your 40s. As you approach the later decades of your life, investing takes on greater importance. Not only are you getting closer to retirement, but it’s also a time when you may be planning your future and hoping to leave a legacy to your loved ones.
So whether you are in your 50s, 60s or already in retirement, below are some ideas of how you should go about investing at this stage in life.
Investing your money during a time that spells carefree living instead of spending it on something that could bring immediate happiness is typically the last thing on the mind of someone who has just reached their 20s. However, the merits of investing early have often been touted. With more time on your hands to grow your wealth, become financially independent and perhaps even reach retirement sooner, your likelihood of attaining lifetime financial success increases immensely the earlier you start investing.
Having said that, if you have hit your 50s and have no investments or a clearly defined financial plan for that matter, remember that it is never too late. Investing at any age comes with its own set of benefits. When you create an investment plan and stick with it, you are, in essence, saving money to earn money, while setting aside funds every month for investing will keep you from spending it on unnecessary expenditures. Ultimately, it shows that you have a level of concern for the future and discipline which could make all the difference during your retirement years.
Before even considering how to invest at various stages of your life, it is important to understand the concept of asset allocation, why it is important and how the choice of assets may change according to your age.
Essentially an investment strategy that aims to balance risk and reward, as its name implies, asset allocation allocates a portfolio’s assets according to a number of factors, such as the investor’s goals, time horizon and risk tolerance, amongst other things. Although there is no particular formula that can be used to find the right asset allocation, it is important to understand that each asset class, be it stocks, fixed-income or cash and equivalents have different levels of risk and return, while they each behave differently over time depending on what’s happening in the markets, the economy as a whole and several other factors.
For example, some investors may be comfortable with a more aggressive investment approach, whereas others may prefer stability and balance. Irrespective of your preferred approach, asset allocation or your age, you must make sure that you have first gathered at least six to 12 months’ worth of living expenses, which should be easily accessible.
With this in mind, here is how you should be investing at the later stages of your life.
As you’ve ushered in the big 5-0, this decade is a time when you would have reached your peak earning years in your career, while certain responsibilities such as paying a home loan or household expenses may be decreasing. While leisurely days doing the things that you enjoy most are not that far off, this decade also serves as your peak chance for you to save and invest as much as you can. Now is the time to think about the kind of retirement you would like to live, determine the budget for it and evaluate how much funds you have to allocate towards investing. With approximately less than 20 years left for you until you embrace your retiree status, the investment moves you make during your 50s could set the stage for, hopefully, a carefree retirement.
If you have spent your younger years putting your money in the latest hot stock, it is often recommended that your investment strategy changes as you grow older, becoming more conservative the closer you get to needing your retirement savings. While this still holds true, do not cut back on risk entirely. In today’s low interest rate environment, some investors opt to keep or even increase their exposure to equities, however, if your risk tolerance does not afford you to do so, then you may want to consider switching some of your investments to more stable assets like bonds.
Linked to the above, as long as retirement is not imminent, there is no need to shy away from stocks since the right mix can help you generate solid returns. One possible sample asset allocation could be dedicating approximately 50% or 60% of your portfolio to stocks, whereas the remaining 40% to 50% is allocated to bonds. What’s more, you may want to consider adding dividend stocks and reinvest dividend payouts while you are still working. This in turn can serve as an added income once you retire. Find out more about dividends and how they work.
Your 50s is the ideal decade to play catch up if a large portion of your younger years was dedicated towards spending your money rather than investing it. According to some analysts, for every decade you age before you start saving, the percentage of your income you should put toward retirement should increase by another 10%. So for instance, if you start off in your 20s, you should strive to save 10%, in your 30s you should save 20% and so on. In this manner, it may be possible to make up for any lost time and meet your retirement goals.
Diversification is key to your portfolio’s success no matter the holder’s age. Having said that, diversification becomes even more important the older you get. If the stock market tumbles before you are set to retire, a more diverse mix of investments may help you minimise any losses you may be forced to take. Remember that diversifying your portfolio does not begin and end with creating a good mix of stocks, bonds and other asset classes. You should also diversify within these investments. For stocks, this means having exposure to large, mid-size and small companies, in established and emerging markets, local and international. In contrast, with bonds, it is all about allocating money in short, mid and long-term local and international bonds.
Have a look at why diversification is so important.
If you have taken up on our advice and have started investing early on, you may have noticed that by now your portfolio may look somewhat different to what it used to when you had started off. For instance, it may be the case that if you had initially built a moderate portfolio with an equal 50% to 50% weighing in stocks and bonds, eventually your stocks may have grown at a faster rate compared to the bonds, which means that you portfolio is mainly reliant on the success of these stocks.
It is always a good idea to rebalance your portfolio at least once a year to ensure that you are sticking to your strategy and you are on the right track to achieving your goals. Ultimately, rebalancing can help you maintain your target asset allocation, while it reduces your exposure to risk outside your comfort zone.
Discover more about the strategies you can use to rebalance your portfolio.
Less than 10 years shy of retiring, if you have been saving and investing strategically for the last several decades, you are well positioned to head down the home stretch. At this point you should have mastered a few significant saving, spending and investing concepts as you have been manoeuvring along life. Ideally, in your 60s you should have a healthy pension pot, no debt and best of all, you should be looking forward to stepping back from your work commitments and begin a new chapter in life.
While the pressures to start using your retirement funds are more real than ever, boosting your wealth is still possible in your 60s. It simply means that any new investments should be lower-risk, while you should consider shifting existing investments to income-producing rather than for growth.
Just because you are one step away from retirement that does not mean that you should stop investing. The aim of having a good investment portfolio throughout your lifespan is to take full advantage of compound gains that will eventually see you through your later years in life. Just as you have refrained from withdrawing any of your returns so far, you should follow suit in this decade, while you should carry on doing so for at least the first few years following your retirement. Withdraw funds unless it is absolutely necessary.
Interested to find out more about the power of compounding? Have a look at how you can make your money work further with a drip-feeding approach.
Perhaps now may be the right time to shift to lower-risk investments that will ensure your nest egg continues to grow but at the same time, it can also beat inflation. For example, the annual inflation rate in the U.S. has averaged 3.1% since 1931. As a general rule of thumb, to beat this, you need a return on investment of at least 4% to 6% per year, in addition to whatever income is generated or saved for. Unless you have managed to amass sufficient money that you do not need to worry about inflation, you will need some growth investments, which means that you should not eliminate stocks since they are still a potentially lucrative investment.
If you are unsure how to allocate your assets, one strategy often used is to subtract your current age from 100, turn the difference into a percentage and then invest that percentage of your retirement savings in stock, while the remainder can be used to invest in less risky assets.
Nothing will be more effective at planning your finances for retirement than having a clear picture of your annual expenses. Having this specific spending data in hand, will not only help you plan ahead and keep a lid on your spending, but it will also drive you to make better financial choices. If you have budgeted and tracked your spending so far, then you have all the data you need to do the calculations. If not, then now is the time to get started. In addition, remember to factor in certain expenses that you may potentially have to face like long-term care.
Financial discipline is crucial if you do not want to outlive your money. Part of making sure that your retirement nest egg will have sufficient funds to see you through your golden years comfortably is to make sure that your spending is under control. Take a long and hard look at your spending habits, decide how much to withdraw annually from your savings and investments and stick to that plan through good times and bad.
Here are some additional ideas of how you can manage your spending:
Eliminate debt – Paying interest every month can eat into your ability to invest these funds for your imminent retirement and once you retire, interest can strain your fixed income. Make every effort to pay any existing debt before you retire.Review your life insurance – Once you have hit your 60s, reviewing your policy becomes a must seeing that your life circumstances may have changed along the years. For example, your dependents could well be independents, so you may not need as much life insurance coverage as you once did. In need of life insurance? Have a look at Calamatta Cuschieri’s full range of personal and business insurance plans.
Retirement is often a major accomplishment for most people. In your 70s, you have finally left the rat race and your 9-to-5 job behind you. But this is also a time of transition as you are no longer focused on growing your retirement funds, but rather, it is about time that you crack into that nest egg. This means that you may need to change your investment strategy if your approach was more aggressive during your 50s and 60s. The idea here is to withdraw enough to help you get by and enjoy retirement, while holding enough in reserve to finance the rest of your life.
As you continue to age, your asset allocation may need to shift significantly. At this point, your investment risk profile and strategy will almost certainly need to adjust. Focus on stocks that provide dividend income and add to your bond holdings. For instance, a sample asset allocation during retirement may be 30% to 50% in stocks and 50% to 70% in bonds, depending on your financial goals, your appetite for risk and your individual circumstances.
As long as you are fit, healthy and up for it, consider whether you can work on a part-time basis or even freelance by making use of your talents or hobbies. Another alternative is to reduce your working hours or take on another part-time role, rather that retiring completely. In this manner, your part-time or freelance occupation can help cover your essential living costs, while your pension fund would still be there for emergencies or occasional treats.
Regardless of where you are at in your life, investing is important at any stage. All you need to do is simply make sure that the decisions you make are the right ones for your age and that your investment approach ages with you.
Yet, nothing will set you up for retirement success than getting professional help. Calamatta Cuschieri’s qualified and experienced financial advisors can tell you where you currently stand in your financial journey and where you need to go so that you can achieve the goals you have set for yourself, irrespective of whether you are in your 50s, 60s or already retired.
Are you younger than 50 with no clue as to how to go about investing? Have a look at these tips on investing in your 20s, 30s and 40s.
The information provided on this website is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Similarly, any views or opinions expressed on this website are not intended and should not be construed as being investment, tax or legal advice or recommendations. Investment advice should always be based on the particular circumstances of the person to whom it is directed, which circumstances have not been taken into consideration by the persons expressing the views or opinions appearing on this website. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views, or opinions appearing on this website. You should always take professional investment advice in connection with, or independently research and verify, any information that you find or views or opinions which you read on our website and wish to rely upon, whether for the purpose of making an investment decision or otherwise. CC does not accept liability for losses suffered by persons as a result of information, views, or opinions appearing on this website.
Calamatta Cuschieri Investment Services Ltd is licensed to conduct investment services business under the Investments Services Act by the MFSA and is also registered as a Tied Insurance Intermediary under the Insurance Distribution Act.
You are signing up to receive news, updates, general market announcement, articles and product or service marketing. By signing up you are consenting