Effective Asset Allocation From Youth to Retirement
Whether you’ve recently graduated from college or are winding down from a long career, it’s important to choose the proper investment strategy for your age. With the right approach, you can put your money to work effectively and enjoy greater peace of mind as you draw near to retirement.
Investing In Your 20s
If you’re in your 20s, it’s crucial to prioritize investing. Thanks to the powers of compounding interest, getting started now gives you a major advantage as you build wealth and save for retirement — even if you can’t afford to invest a lot of money right away. If you have access to a 401(k) plan through work, contribute as much as you can, especially if your company offers matching funds. If you don’t have a 401(k) or if you want to invest even more, you could also open a Roth IRA.
Since you’re still several decades away from retirement, you can afford to invest more aggressively. An allocation of 80 to 90 percent stocks and 10 to 20 percent bonds can be a good strategy at this stage. If you have a 401(k) plan, you might be able to invest in a target-date fund that automatically re-balances your allocations and adjusts your investment risk as you age.
Investing In Your 30s and 40s
Your 30s and 40s are prime decades for investing, especially if you’re experiencing career and income growth. It’s also an opportune time to start playing catch-up if you’ve neglected investing until now. Continuing an aggressive approach in these years and doing everything you can to max out 401(k) or Roth IRA contributions can be a smart strategy. As you move into your 40s, however, shifting your asset allocation a bit more toward lower-risk bonds should be considered.
During these years, you’re also likely to have more pressing financial priorities that need to be balanced with investing — like paying off debt or saving for your children’s education. Consider seeking the counsel of a financial advisor to help you set goals and plan your next moves.
Investing In Your 50s and 60s
As you draw closer to age 65 and retirement, consider an investment strategy that combines more conservative asset allocation with an urgent focus on saving. Cutting back on risk helps ensure that the funds you’ve worked so hard to build up will be there for you during your retirement. Meanwhile, you can put even more money toward those years. If you’re 50 or older, the IRS allows you to increase your maximum annual 401(k) contribution from $19,500 to $26,000 and increase your maximum IRA contribution from $6,000 to $7,000.
No matter where you are in life, it’s imperative to invest wisely for retirement. As you age, make sure you’re maintaining a flexible approach to investment strategy so you can make the most of your hard-earned dollars.