Your risk capacity, mindset and goals continually evolve over time. At age 25, you might be focused on paying off student loans, marriage and saving up for your first home. Your career is just getting started, and post-work years are well into the future. At 60, however, you’re starting to imagine a time when the career hustle won’t be a part of your life anymore — and neither will your usual income setup. Just as your life changes, your investment decisions may change as well.
If you’re taking the same risky investment approach at age 60 as you did at 25, you may decide to pump the breaks. And for those who are too conservative with decades left until your golden years, you could be leaving money on the table. As you move into new life chapters, it can be worthwhile to re-evaluate your investment decisions.
Investment Risks Over Time
Generally speaking, the younger you are, the riskier you may decide to make your investment portfolio. Earlier in life, many feel comfortable with a high-risk strategy because they won’t be withdrawing for years — they have time to recover and recoup from any losses from incidents such as a sudden market downturn.
Someone who's a few years away from retirement, however, won’t have as much time to recover from a plunge in the market and may decide to maintain a lower-risk strategy. If their portfolio relies too heavily on stocks, their entire retirement strategy could be jeopardized. They may not recoup their losses and could easily drain their other resources while trying to accommodate for this loss of income.
Investing At Various Ages
Along with risk tolerance, your age can also be an essential factor when deciding how much to invest and what types of vehicles to invest in. For example, the higher the percentage of stocks you invest in, the more volatile your portfolio may be. Many may choose to minimize risk and focus on more steady sources of income as they get closer to retirement.
Investing In Your 20s and 30s
After gaining some stability in your life and career, you may be ready to move your money out of a savings account and into a growth role through investments. With 30-plus years ahead of you before retirement, your intention might be focusing on growth over time. For those planning on retiring at least 30 years out (past your 50s), it’s common to have between 70 and 80 percent of your portfolio in stocks. During your 20s and 30s, other common investment options include real estate, 529 plans, employer 401(k) plans and/or IRAs.
Investing In Your 40s and 50s
As you’re inching closer to those peak earning years, the 40s and 50s can be an opportune time to double down on steadier investment options. If your employer offers contribution matches to 401(k) plans, contributing the maximum amount now could create a promising payout through retirement. In general, how you invest in your 40s and 50s will vary greatly depending on the types of investment options (if any) were made in your younger years, and how close you are to your goal and your risk tolerance. In general, most people begin shifting their asset allocation to a less aggressive strategy as the time frame to their goal decreases.
Investing In Your 60s and 70s
How you choose to invest in your 60s and 70s will greatly depend on how your current financial picture aligns with your retirement goals. Take a look at your current income level, nest egg, taxes and projected retirement income. This could help you determine how aggressive your portfolio should remain. Depending on when you plan to retire, today’s 60-year-old man is expected to live an additional 23 years (age 83), while women can expect an additional 26 years (age 86).1 Incorporating an appropriate amount of risk into your portfolio can help you and your spouse prepare to experience the kind of retirement you want.
How you may decide to invest throughout your career can be based on a number of factors, but it’s always important to take your age and proximity to retirement into account. As you’re analyzing your portfolio’s asset allocation, diversifying and protecting your future retirement is essential. Reflecting on your investment strategies can create peace of mind as you get closer to retirement age.