The primary reason behind investing money is to save enough funds for your future retirement. To ensure you build a sizable retirement corpus, you need to consistently pick the right investment options. The important thing is to start saving and putting away money as soon as you can. However, if you begin from a young age, you have more time to harness the power of compounding and reap its benefits.
No matter what life stage you are in, you need to select the right assets to invest your money in. Picking good investment vehicles is essential and you need to take care to spread your money in different asset classes. Doing so would help diversify your portfolio and spread the risk so that you are not exposed to one sector disproportionately. Each asset class has a different level of risk and reward, thus, you should carefully consider before making a purchase. Take into account different factors such as your risk appetite, market volatility, state of the economy as well as your age before you decide how you wish to invest your money. You can reach out to a professional financial advisor to learn about the pros and cons of different investment instruments and select one based on your risk profile and future needs.
Let us discuss different investments that you should make in your middle-age:
1. Mutual funds
Though the exact range of middle-age varies, it is usually placed between the ages of 40 and 60. By the time you enter your middle-age, it is expected that you would have already started saving for retirement or at the least are thinking about it. Even though there is no one investment that guarantees safe and secure returns, mutual funds tend to be one of the best investments that middle-aged folks can make to secure a comfortable retirement. The major benefits of mutual funds are:
- Easy and simple to invest in: You do not need to be a financial expert to buy mutual funds or understand the way they work. You can invest in mutual funds for an amount as small as $100. You also do not need a broker to invest in them. Moreover, middle-age is a time when you are juggling multiple responsibilities such as saving for your kid's college tuition, building a retirement nest egg, etc. Not everyone has sufficient time to acquire financial knowledge and learn about making complex investment choices. This makes mutual funds a good investment choice for middle-aged investors.
- Helps you build a diversified portfolio: By investing in mutual funds, you can easily diversify your portfolio. Mutual funds are of various categories typically defined by the kinds of securities they invest in, their investment objectives, the level of risk that they carry, etc. You can invest in different kinds of stocks, bonds, money market instruments, and other assets. Mutual funds are a relatively safe and secure way for investors to diversify and grow their portfolio.
- Gives you access to a wide variety of investment options: There are several types of investments available to you wherein you can invest your funds such as target date funds, balanced funds, sector funds and index funds, and more. Index funds can be a cost-effective option for middle aged investors to invest their money in. An index fund is a kind of mutual fund or exchange-traded fund that mimics the composition and performance of a market index.
2. Roth IRAs
Roth IRA is a tax-advantaged individual retirement account (IRA) wherein you contribute after-tax dollars and benefit from tax-free growth and earnings. It is one of the most popular retirement accounts in America owing its popularity for the major part being able to make tax-free withdrawals in retirement provided certain conditions are satisfied. For 2022, you can contribute a sum of $6,000. If you are 50 years of age or above, you can make an additional catch-up contribution of $1,000, bringing your total to $7,000 for the tax year.
There are several advantages when it comes to investing in a Roth IRA. These are:
- As stated above, you can make tax-free withdrawals in retirement provided you have held the account for a period of at least five years and are 59.5 years of age or older.
- There are no required mandatory distributions (RMDs) that you must take out once you reach 72 years of age enabling you to maximize your growth.
- You have a wider choice of investment vehicles available to choose from.
- If you expect to be in a higher tax bracket in retirement, a Roth IRA is a wiser choice for you.
If you would not like to go for a Roth IRA, you have an alternative available - a Roth 401(k). This is an employer-sponsored retirement account wherein you contribute after-tax dollars. Though your earnings are taxed, you can make tax-free withdrawals in retirement. Additionally, you must take out RMDs after you turn 72. For 2022, you can make a contribution of $20,500. However, if you are 50 or up, you can make an additional catch-up contribution of $6,500. This brings your total contribution sum to $27,000.
3. Real estate
Real estate requires a significant sum of money to invest in. If you cannot afford to invest in your own home, you can always consider investing in a real estate investment trust (REIT) fund. With REITs, you get the twin benefits of investing in real estate as well as in publicly-traded stocks. REITs make a great investment option for middle-aged investors because:
- REITs offer investors with a wide array of advantages such as liquidity, dividend-based income, hedge against inflation and a way to diversify their portfolio. It can not only generate steady returns in the form of rental income but also serve as a great investment tool for effective retirement planning.
- Since REITs offer high cash distributions compared to other types of corporate dividends, they are extremely popular with middle aged investors. If you have invested in a REIT, you are protected by law when it comes to receiving investment returns since a company must pay a minimum of 90% of taxable income in the form of shareholder dividends each year to qualify as a REIT. This makes your returns a safer bet.
- In times of market volatility and rising inflation, a publicly-traded REIT can be a source of stability to middle-aged investors and their investment portfolios.
To successfully build a robust retirement portfolio, you need to evolve and refine your investment approach to maximize returns and savings. You can invest in high-risk securities such as stocks when you are younger to aggressively target higher returns. You can rebalance and adjust your portfolio as you age and your priorities change.
Once you are in your middle years and nearing retirement, you can shift your focus towards low-risk investments such as bonds to preserve your capital. At this point of time your focus should be on strengthening your retirement savings and securing your golden years.
If you need guidance on which investments you should invest in based on your risk profile and future goals, consult with a professional financial advisor who can advise you on the same. Use the free advisor match service to search for fiduciary advisors near you. Answer a few simple questions about yourself and the match tool will help connect you to 1-3 financial advisors based on your financial requirements.