The Lifelong Investor: Tips for Each Stage of Life
This is a guest post from Samantha Ducati.
Many things develop and change over the course of a person’s life. Whether this is lifestyle, relationships, or managing your health, things change with age. Because millennials grew up in the midst of a stock market low in the early 2000s, many young people know very little about investing.
Here are tips on how your investing strategies should change as you age. These might be different for everybody but this is a general overview on what you should focus on.
Investing In Your 20s.
Many people look at their twenties as a time to get out of the financial ruin that came with their student loans. Gaining the knowledge of how to invest wisely can help a young person get out of that debt and begin saving money. Making sound investments can lead you to financial success and early retirement.
This should be a time where you’re thinking about putting a down payment on your first home. You could even be considering providing for your children in the future if you’re married. A solid investing goal is to put about a tenth of your earnings into a retirement fund while you’re young.
Growth stocks for young people are great because these large companies generally are usually consistent and pay a good dividend. Investing in an employee stock options program is great because you can grow along with a company. For example, one of the best stories of an ESOP program was a janitor at Google becoming a millionaire after the company grew.
Investing in Your Mid 30s to 50s.
This will be the time when you’re doing best for yourself financially. There are also investments that you have to look at for your children. These include a college education and different activities your children would be interested in. You should begin investing much more often outside of your employer’s ESOP program to ensure your portfolio is differentiated. Investing around one-fifth of your money into a retirement fund becomes wise at this point, as your high-earning years are limited.
Growth mutual funds and growth stocks are great to invest in during this time. Talking to a financial advisor who you trust is an important step in making wise investments at this stage. This advisor will help you further your portfolio and you can look up this person’s performance reviews to make sure you’re getting the best man for the job.
Investing in Your Mid 50s to Retirement.
This is when many people move a majority of their money away from growth stocks and into high dividend earnings. This will help you have a nest egg for when you retire, but it will also give you more income when you really need it. Of course you don’t want to lose money on these, but the returns are great. Getting into mutual funds and bonds is important to balance your money in between growth stocks and bonds, so you have the balance between growing and fixed income.
This is because it’s possible that your growth stocks could take a big loss if you’re guided in the wrong direction. This is why you need to make a switch if necessary, because you only have a specific amount of earning potential left.
You should have an investing plan that includes knowing the rates that are taken out of your retirement funds when you need money. For example, a 401k sometimes has large penalties if you take it out before you turn a certain age. By the time you turn 70, you have to take a certain amount out of your fund each year according to the a formula adjusted for each year. You shouldn’t extract all of your funds out of your investments because you will still need an income.
Social security won’t always pay for all of your expenses, so having a solid returning dividend is important in your later years, but if you are thinking of buying an annuity, take care. Investigate thoroughly and check in with a trusted adviser before purchasing.
There are many different strategies about how to invest as your age and career progresses. No one strategy is right for a specific person but a trained professional would be best to consult before making any large decisions.