The allocation of your investments is bound to change at every stage of your life to reflect your financial objectives, responsibilities, lifestyle, and experience. At 50 years, you are probably near the peak of your career and you have a number of responsibilities. If you haven’t had investment plans in earlier years, it is still possible to start planning your investments at 50 years. You can choose to invest in securities such as stocks, bonds, mutual funds, gold, cryptocurrency, CDs, or even p2p investment, and other investments depending on your financial objectives and risk tolerance.
Tips for Investing in your 50s
Investment strategies and tactics differ for everyone because everyone has different financial goals. The following are some tips to help you get started.
- Make a Plan. Planning for your investments helps you create a budget and financial target. It gives you a road map that will help you deal with challenges and reach your goals.
- Stay with Stocks. Although stocks are risky investments, they can guarantee high returns
- Reduce your Spending. If you want to have a secure future with your finances, spend less and invest more.
- Diversify your Investment Portfolio. Holding a single type of investment may hurt your returns in the long-term incase that investment suffers losses. To avoid this, spread the risk by choosing the right mix of asset classes (Read: Diversified portfolio in asset management).
- Rebalance your Investment Portfolio. It is best to check your portfolio from time to time to see if it is growing towards your target. If not, consider adjusting your portfolio to make sure your portfolio has the right asset allocation for 50 year old.
Investment Portfolio for 50 Year Old
At 50, your investment strategy needs to focus on preserving wealth and creating multiple sources of income for retirement. At this point, the right asset allocation gives you a better chance of realizing high returns. To achieve this, it is best to diversify your investment portfolio. A well-diversified investment portfolio includes a combination of different investments such as stocks, bonds, gold, mutual funds, real estate, index funds, cryptocurrencies, CDs, and other investments. This diversity aims to reduce an investor’s overall investment risk. When it comes to choosing your investment portfolio, there is no one-size-fits all. However, you can choose a combination of the following investments.
Read also: Investment Ideas for 35 Year Old
The common rule of thumb states that individuals should hold a percentage of stocks equal to 100 or 110 minus their age. However, the percentage you choose to invest in any asset class will depend with your financial needs. You can hold stocks from different high-quality sectors. Examples of such stocks include energy stocks, airline stocks, healthcare stocks, railway stocks, and technology stocks. Also, you can consider large-cap stocks, small-cap stocks, growth stocks, value stocks, international stock funds, and dividend stocks. Some studies say that you can achieve optimal diversification with 15 to 20 stocks spread across various industries.
Further reading: 7 Reasons Not to Invest in Penny Stocks and How to Invest in Stocks Even When You Don’t Know Where to Begin
Being fixed income assets, bonds will earn you interest at regular intervals until they reach maturity. Bonds are believed to be the safest investments compared to stocks because in the case of bankruptcy, corporations are required to first pay back bond investors before paying stock investors. You can diversify your bond holdings by investing in bond funds or you can vary your holdings across bond maturities, types, and sectors. The different types of bonds you can invest in include corporate bonds, municipal bonds, agency bonds, and government bonds. Bonds have the potential to stabilize a diversified investment portfolio because certain bond types can be very stable when the stock market declines. How much you allocate toward bonds in your portfolio will depend with your financial goals and preference for risk. Our Beginner’s Guide to Investing in Bonds will be of a great help to you.
Mutual funds are passive investment instruments that pool money from many investors and investing in a collection of different assets. Mutual funds naturally diversify an investment portfolio, making them ideal for 50 year olds. The four main types of mutual funds are Equity Funds, Money Market Funds, Bond Funds, and Balanced Funds. Find out everything you need to know about investing in mutual funds.
Cash is an ideal investment because it does not lose value like stocks and bonds. You can diversify your cash holdings by putting some of it in a liquid savings account and the rest of it in a less-liquid certificate of deposit to maximize your liquidity and interest earnings. It is recommended that you hold your cash in separate banks.
Gold is a scarce, highly liquid asset that carries no counterparty risk. As such, adding it to your investment portfolio at 50 helps in diversification and risk reduction. Holding between 2% to 10% of your portfolio in gold maximizes your investment returns. You can invest in gold in many forms including gold bullions, Gold Coins, Gold ETFs and Gold Mutual Funds, and Gold Futures.
If you want to increase your portfolio’s total returns and also reduce overall volatility, invest in real estate. Investing in Real Estate Investment Trusts (REITs) help to generate good returns. Studies show that an investment portfolio that includes a 5% to 15% allocation to REITs with a combination of other investments fetches you good returns.
50 year olds can lend money on peer-to-peer investment platforms to earn better returns for their money. However, if your are lending money on these platforms, ensure you put a small part of your money and choose low-risk borrowers. Doing this will earn you low returns of between 12% and 16% but your money will be safer. Here’s our review of best peer to peer investment platforms around the world.
Target Date Funds
A target date fund is a type of mutual fund that holds multiple asset classes and automatically rebalances over time to achieve a specific asset allocation on a target date. Target date funds are designed to target your anticipated date of retirement and as your retirement date gets closer, the fund adjusts its holdings from higher-risk, higher-growth assets to safer, lower-risk assets. With target date funds, you focus less on maintaining your investment portfolio because target date fund managers handle asset allocation, buying, selling, and rebalancing.
Before you invest in cryptocurrency, make sure you are in a financially sound position because crypto is a risky investment. You can buy crypto through traditional finance apps such as Cash App, cryptocurrency exchanges such as Kraken, Coinbase or crypto banks such as Revolut and Mistertango.
You can invest in cryptocurrency through interest account via Dollar Cost Averaging cryptocurrency with DCA exchanges or Bitcoin investment apps such as Relai. If you live in supported countries, you can also open crypto trading account with platforms such as XTB or Dukascopy bank.
Find out more: How to Invest in Bitcoin in the US
The Importance of Diversifying your Investment Portfolio
Allocating your investments across various financial instruments, asset classes, and industries reduces risks and potentially maximizes your returns. Some of the benefits of portfolio diversification include the following:
- Reduces the impact of market volatility. Spreading your investments across various asset classes and sectors helps to reduce investment risks and generates higher returns.
- It helps to protect your Capital. Diversifying your portfolio is a way to play safe in a rather volatile market.
- Exposes you to more opportunities for generating return. By investing in different asset classes, you are in a better position to earn more returns in case all your investments do well consistently.
- It helps to reduce the time spent in monitoring your portfolio. If your investment portfolio is stable, you will not spend so much time studying the market and trying to find other avenues to increase returns.
- Offers peace of mind. If your investment is divided into different asset classes, you will not be worried about how the portfolio is performing. Diversification spreads the risks across the different types of investments.
Final Thoughts on Investment Portfolio for 50 Year Old
Building a well-diversified investment portfolio takes time and effort. There are many different investments within every asset class that you will need to compare and find the one that align with your financial goals. After building your portfolio, you will need to pay close attention to it to ensure that your investments are making progress as expected. Finally, the percentage you allocate to each of your investments is entirely up to you.