Investing in Your 40s

Investing in your 40s is all about ramping up your investing and locking in your goals in preparation for retirement. But even if you’re a little late to the game, there’s plenty you can do to safeguard your finances and start building an investment portfolio to help carry you through retirement.

8 tips to start investing in your 40s

How to start investing in your 20s: 7 tips for beginners

1. Clarify your financial goals

Let’s face it: things have changed since you were in your 20s. Heck, things are different now than they were a decade ago. An important step to take as an investor in your 40s is to clarify your financial goals. Whether you do this alone or with a partner, friend, family member or financial advisor, take some time to lay it all out.
Review your income, expenses, savings, investments — you name it. You want to get a holistic picture of your finances to reassess your goals accurately and inform your retirement plan. As tempting as it may be to leave your finances on autopilot, it’s crucial to stay flexible and adaptive as your life circumstances evolve.

2. Build a detailed retirement plan

If you haven’t begun work on your retirement plan, don’t panic. You still have plenty of options to start planning your retirement. As you begin to budget for retired life, consider the following:

• Timeline. Much of your retirement plan hinges on when you plan to retire. The transition to early retirement could take place in your late 50s — others wait until over the age of 70 to truly call it quits. Consider when you’d ideally like to retire and work backward to determine how many years you have to plan and save.
• Lifestyle. While some look forward to spending their retirement with friends and family, others aspire to travel and whittle down their bucket list with high-flying adventures. Aim to budget for at least 80% of your current spending habits in retirement — more if you plan to busy yourself with travel.
• Expenses. Anticipated expenses are one thing: emergency expenses are another. Make sure you account for both when plotting your retirement fund.
• Inflation. If compound interest is an investor’s best friend, the growing inflation rate is undoubtedly an enemy. Factor cost of living increases into your retirement investing strategy.
• Taxes. Getting taxed on your investments is never pleasant, but it’s possible to get strategic about where and when you take on the burden of paying tax. While a true tax-free investment doesn’t exist, tax-advantaged retirement accounts, like 401(k)s and IRAs, are a practical way to control how your investments are taxed.
• Estate planning. While it may be uncomfortable to contemplate, ensuring your estate is in order is an important part of preparing for retirement. Sit down with your loved ones or financial advisor to devise a strategy for your assets and accounts after you die.

How much do I need to retire?

Generally speaking, most retirees need about 80% of their pre-retirement salary annually to live comfortably. So, if you make $60,000 per year before retirement, anticipate budgeting $48,000 per year once you retire.
Once you’ve got your ideal retirement income in mind, you can use the 4% rule to determine how big of a nest egg you’ll need to build. The 4% rule is typically considered to be a safe withdrawal rate for retirement — although some financial advisors argue that the rule is outdated and doesn’t account for major market upheavals, economic crises or fluctuations in withdrawal rates.
That said, the 4% rule can give you a general idea of how much you’ll need to save for retirement. You simply divide your ideal retirement income by 4% to arrive at the amount you’ll need to save.

Annual retirement income	Nest egg
$40,000	$1 million
$50,000	$1.25 million
$60,000	$1.5 million
$80,000	$2 million

If you’re still unsure how much you need to retire comfortably, rely on a retirement calculator to help you set some nest egg milestones. Consider a new brokerage account if you need to expand your investing.

3. Consolidate your retirement savings

By the time you hit your 40s, you’ve probably cycled through your fair share of jobs, from part-time gigs as a 20-year-old to full-time roles across various employers. Regardless of your employment history, there’s a chance you have a couple of old 401(k) retirement accounts kicking around.
If that’s the case, you’ll want to read up on your 401(k) conversion options. You can roll over old 401(k)s into a new 401(k) — if that’s something your present employer allows. Or you can shift funds from an old 401(k) into an IRA or a self-directed brokerage account. A self-directed brokerage account will give you more investing freedom, but any funds you roll over will lose their tax-advantaged status.
You may also want to consolidate other investment and savings accounts, or at least make sure you can track them all from one place.

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4. Rebalance your portfolio

Your investment portfolio should be anything but static. Instead, it should act as a direct reflection of your ongoing financial goals; flexible and adaptive in the face of major life events. Even passive investors investing with a human or robo-advisor can’t afford to set it and forget — not in the long run, at least.
It’s crucial to revisit your investment accounts on a routine basis. The asset allocation strategy of a 20-year-old investor will look different than that of a 40-year-old. The longer your time horizon, the more risk you can afford to take. That said, you don’t want to pull out of all your high-growth stocks in favor of safer, more conservative investments, like bonds.
Maximizing your returns as you move closer to retirement is a delicate balancing act. And the ideal balance ultimately comes down to your risk tolerance and individual investment goals. But if you’re looking for a ballpark range, advisors suggest investors in their 40s should aim for 70% high growth assets, like stocks, and 30% conservative assets, like bonds.

5. Prioritize high-interest debt

Debt doesn’t need to be a four-letter word — at least not the type you’re thinking of. Debt tends to get a bad rap, but carrying debt is incredibly common. And so long as you carry it responsibly, there’s little need to panic.
Consider paying off high-interest debt, like credit card debt, before low-interest or tax-deductible debt, like your mortgage. And if you find yourself facing down multiple debt streams and feel overwhelmed, explore the debt avalanche and debt snowball methods. Both are designed to help you create an actionable game plan for multiple debts.

6. Explore alternative investments

Diversification remains a core ingredient of any healthy portfolio. As you enter your peak earning years and prepare for retirement, consider branching out into alternative investment classes.

• • HSAs. A health savings account offers triple the tax-advantages when wielded effectively: tax-deductible contributions, tax-free investment growth and tax-free withdrawals on qualified health expenses. You can open an HSA with an employer or through your local bank or online brokerage.
  • 529s. If you have children, consider a 529 savings plan: a tax-advantaged account that can be used to cover qualifying education expenses later in life. Plus, many states offer tax deductions and credits for 529 plans.
  • CDs. Certificates of deposit offer consistent interest rates over set terms — typically three months to five years. You’ll find the most competitive CD rates accompany the longest terms and most CDs have minimum deposits of $500 or more.
  • Real estate. An investment in real estate can take many forms, from mutual funds and REITs to purchasing property outright and becoming a landlord.
  • Cryptocurrency. It may seem too new to older investors and it has significant risks, but money is being made here. Consider starting to invest in crypto.

7. Consider a financial advisor

If actively managing your investments has become overwhelming, don’t be afraid to ask for help. Investors in their 40s often have a rich and diverse financial history. And if wrangling up accounts, calculating retirement expenses and navigating the obstacle course that is tax-advantaged investing has become altogether too much, it may be time to consider a financial advisor.
Financial advisors can assist with investments, retirement savings, estate planning and more. In the US, investment advisors must carry the Series 65 license, a license awarded after successfully completing the Uniform Investment Advisor Law Examination. This license was designed by the North American Securities Administrators Association (NASAA) and is administered by the Financial Industry Regulatory Authority (FINRA).
Financial advisors can be hired through banks and wealth investment firms, like Facet and Personal Capital. Many advisors charge for their services using an annual asset management fee that typically ranges from 0.25% to 2% of your total account balance.
And if you’re looking for investment guidance, a human isn’t your only option: robo-advisors are algorithm-driven digital services that manage your portfolio on your behalf, making automatic adjustments based on your investment preferences.

8. Monitor your investments

Keep track of your portfolio’s performance by regularly reviewing your investments. Hands-off investors who leave their portfolios with human or robo-advisors may only need to check in once per quarter. Active investors — especially those with volatile, high-growth stocks — may want to check in more often.
Ultimately, the frequency with which you revisit your portfolio will depend on your trading strategy. But be careful not to over-monitor your accounts. Financial experts warn that too-frequent checking often lends itself to loss-inducing trades.

Gen X and Y investors

Have you ever invested in stocks, outside of contributions to a 401K or similar retirement plan?

Gen Y lead the way for investing, with 45% saying they’ve invested in stocks outside of their 401K, while Gen X has the lowest percentage of investors at 36%.

Bottom line

Investing in your 40s is all about staying organized and adaptive. Consolidate your investments, revisit your asset allocation strategy and don’t be afraid to branch out into new investment classes. Review your investment options across multiple platforms and assets to keep your portfolio — and returns — on an upward trajectory.

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