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Investment Strategies by Age

As you progress through life, your ambitions and aspirations change. Your investment approach should reflect this as well.

Choose your age to discover more about potential asset allocations and investing strategies.

Investing in your 20s

A potential investment mix to consider:
Stocks: 70%
Bonds: 20%
Cash: 10%

Be aggressive

The majority of your investments should be in equities because equity investments are often more volatile than bonds. However, equities may have greater growth potential, and youthful investors have more time to recoup from any potential losses.

Build a financial base

Compound interest is a two-word phrase. Money invested in your twenties will profit from decades of compound interest. Consider this hypothetical example: $10,000 invested at the age of 25 with a 5% annual compounded return will net you $70,400 by the age of 65.

Join an employer-sponsored retirement plan

Investing through a company retirement savings plan is the simplest way to start investing if you have access to one. Contributions are deducted immediately from your paycheck, and many plans allow you to make both pre-tax and after-tax Roth contributions. Many firms will match up to a specific amount of employee contributions. Selecting a target date fund option, if available, can help you manage your asset allocation in line with your age.

Also, if you move jobs, don't forget to roll over your 401(k).

Pay down debt

While high-interest credit card debt should be paid off first, paying off lower-interest student loans may help you save more money in the long term.

Investing in your 30s

A potential investment mix to consider:
Stocks: 70%
Bonds: 20%
Cash: 10%

Focus on the long game

You're still decades away from retirement, so you might choose to keep your portfolio mostly invested in equities.

Try putting aside 15-20% of your pre-tax salary for retirement either an employer-sponsored retirement plan or an individual retirement account (IRA).

Also, don't overlook a Health Savings Account (HSA). An HSA can be funded with pre-tax or tax-deductible contributions, grows tax-deferred, and is tax-free for qualified medical expenses both before and after retirement. While there are annual contribution limits, an HSA can follow you through changes in employment and into retirement.

Factor in other goals

This is also a good time to start putting money aside for other goals. For example, if you want to buy a house, save up to 20% of the buying price as a down payment. The more you put down, the less you'll have to spend in interest, fees, and monthly mortgage payments.

Work on your emergency fund

The general rule of thumb is to set aside three to six months of household income for emergencies such as job loss or medical expenses.

Think about family finances

Consider planning for your children's financial prospects as you budget for their day-to-day expenses if you have a family. A 529 college savings plan, for example, can assist pay for qualified school expenses, including K-12 tuition.

Investing in your 40s

A potential investment mix to consider:
Stocks: 50%
Bonds: 40%
Cash: 10%

Mix in moderate risk

Consider reallocating some funds — perhaps 40% — into fixed-income instruments such as investment-grade bonds as your investment portfolio grows. Though they may deliver lower returns, they may also provide less volatility than equities. Lowering your risk in your 40s can assist you in staying on track for retirement.

Pay down your mortgage

Your mortgage may have many years left on it, but putting extra money toward it might help you chip away at principal and minimize the amount of interest you pay overall. Prioritize this step if you're paying private mortgage insurance to assist you avoid that extra cost.

Take full advantage

If your business provides a sponsored retirement account, maximize your contributions. Make sure you're taking advantage of any employer match that's available, and aim to contribute up to the IRS limit each year if possible. If you have an HSA, you should think about maxing out your contributions here as well.

Broaden your portfolio

If you've maxed out your retirement contributions and have extra money to invest, consider creating a brokerage or automatic investment account.

Investing in your 50s

A potential investment mix to consider:
Stocks: 30%
Bonds: 60%
Cash: 10%

Maximize your contributions and lower risk

Consider shifting a larger portion of your portfolio to investment-grade bonds. Now is the time to consider increasing your retirement fund contributions and taking advantage of catch-up contributions to your 401(k) or IRA.

Think realistically, envision your retirement costs

When you're about 15 years away from retirement, you can start thinking about your retirement expenses. Create a detailed budget to determine how much more you need to save to attain retirement.

Consider downsizing

This could be an excellent moment to downsize to a smaller property for retirement or to ensure that the family vacation home is passed on to the next generation.

Investing in your 60s

A potential investment mix to consider:
Stocks: 20%
Bonds: 70%
Cash: 10%

Maintain low risk

This is the moment to invest the majority of your funds in fixed-income bonds to reduce market risk and provide a constant income for distributions.

Plan your withdrawal strategy

While the "4 percent rule" is the most commonly used technique, there is no one-size-fits-all solution for withdrawing retirement income. Make careful to account for taxes, other sources of income, and life expectancy in your strategy.

If you're able, try living off your predicted income for a few months before retiring to evaluate if your plan will work for you in the long run.

Consider your legacy and next generations

Before you reach your 60s, you should have the fundamentals of your legacy plan in place, such as your will and other estate paperwork. Starting your wealth transfer and yearly charitable giving after retirement may help reduce the tax load on your estate.