Whether you’re just starting your first job, married with two kids, or planning to retire, investing should be part of your financial plan.
But the same strategy shouldn’t be used for every stage of your life.
Generally, people who are younger can tolerate more risk because they have more time to recover from any losses. People nearing retirement tend to be more conservative as their investment goal shifts to generating regular, life-long passive income for their golden years.
Tips for all ages
Before we look at how to invest at every age, all investors should consider these guidelines too when planning their investment strategies.
Risk appetite: How much risk you can stomach is a matter of personal preference. Would you be comfortable seeing your portfolio decline 20%, or would that cause you sleepless nights? Your risk appetite can change depending on your life stage and financial circumstances.
Time horizon: How much time do you have to reach your investing goals? A 30-year old planning for retirement may have an investing timeframe of 30 years.
Goals: Different goals have different time horizons and risk levels. Money that you need in the next one to two years – say for a vacation fund – should not be invested in stocks. Instead, consider cash management products.
Emergency savings: At any age, you should have at least three to six months worth of living expenses set aside in an emergency fund.
Investing in your 20s
Your 20s are the best time to start investing. You’re just starting out in your career and time is on your side. Use the power of compounding to your advantage by investing as early as you can.
At age 25, you only need to invest $600 a month to reach a net worth of $1 million when you turn 60, assuming an average annual return of 7% per year.
If you wait just 5 years till you turn 30, you’d have to invest $900 a month just to reach that same $1 million goal.
In your 20s, you can be more aggressive with your investments and hold more stocks in your portfolio. Stocks have more potential for growth, although they are typically more volatile than bonds.
For example, you can consider investing 90% of your portfolio in stocks, and the rest in safer assets like bonds or cash management products like Syfe Cash+.
Investing in your 30s
In your 30s, your career may be taking off and you may be thinking about buying your first home and starting a family.
As your earning power increases, you should also be saving and investing more. Financial experts typically recommend saving and investing 15% to 20% of your income.
Your 30s are when you should start being more strategic with your investments as you plan for specific goals, such as your child’s university education or buying a property.
Keep the timeline for your retirement and other investing goals in mind. It can be helpful to use different portfolios for each goal. For instance, a balanced portfolio may be used to achieve a medium term goal like a house down payment while a capital growth portfolio may be used for goals that are more than 10 years away.
Investing in your 40s and 50s
In your 40s and 50s, your focus should start shifting towards more conservative investments given that retirement may only be 10 – 20 years away. With the relatively shorter time horizon, you have less time to recover from any shocks to your portfolio.
So while stocks should still be an important part of your portfolio, you should also be putting more money in safer asset classes. For example, depending on your risk appetite, about 50% to 70% of your portfolio can be in stocks, and the rest can be in bonds, gold and cash management products.
You can also consider investments that provide dividend income. REITs are a very popular choice in Singapore. They offer the potential for capital appreciation while returning 5% dividend yield on average.
An easy option would be investing in Syfe REIT+, which holds the 20 largest REITs in Singapore within one portfolio.
Investing in your 60s and retirement
If you’ve been saving and investing regularly for the last decades, you should now be well positioned to enter your golden years.
Ideally, you should have a nest egg outside of your CPF savings, minimal debt, and a solid plan for withdrawing your retirement savings.
That said, now isn’t the time to stop investing completely. Given longer lifespans today, you’ll need to ensure that your retirement fund continues to grow. This means carefully evaluating your risk profile and asset allocation.
Depending on your retirement goals, risk appetite and individual circumstances, a sample asset allocation during your 60s and 70s may be 20% to 40% in stocks, and the rest in bonds and other safe assets.
Don’t give up on stocks completely. You still need some in your portfolio to help you beat inflation and continue generating returns. But instead of growth, consider income-producing investments like REITs or dividend stocks.
The takeaway: investing at every age
Investing is a lifelong journey. No matter where you are in life, it’s never too late to invest.
Thanks to digital wealth platforms like Syfe, you can start investing any time and from any amount. As you approach your goals and milestones, you have complete flexibility in withdrawing your money, and no charges for doing so.