Some people are fortunate enough to be able to start investing in their 20s. Those who land in that boat get to benefit from many years of compounded returns in their portfolios.
But perhaps you're only first starting to invest in your 60s. If you were a lower earner for most of your life and more recently worked your way up to a higher-paying job, that could explain why you're first getting started at this stage of the game.
Or maybe you always earned a decent paycheck but just plain had a lot of obligations and expenses. That's understandable, too.
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The good news is that it's really never too late to start investing. But if you're in your 60s, you'll need to be careful about how you go about it.
You don't want to take on too much risk
The tricky thing about investing for the first time in your 60s is that you may be very close to ending your career. And in general, it's not a great idea to put money into stocks that you expect to need within seven years.
The reason? The stock market can be very volatile. If you're investing for a longer period, you have time to ride out market downturns. But if you're 65 years old and plan to retire at 67 or 68, that's not a lot of time to sit back and let your portfolio recover following a stock market crash.
As such, you'll need to be careful not to go too heavy on stocks if you're first investing in your 60s. But that doesn't mean you shouldn't buy any stocks at all.
A good rule of thumb is to subtract your age from 110 when deciding how much of your portfolio should be in stocks. So if you're 65, that could mean putting 45% of your money into stocks and playing it safe with the rest of your money -- namely, by choosing bonds, which tend to be far less volatile.
Of course, you can adjust that percentage depending on your personal appetite for risk. But that rule is a general guideline.
From there, it's important to diversify your holdings whether you're talking about stocks or bonds. Load up on stocks and bonds across a range of companies and industries. Or, instead of buying individual stocks, consider investing in an S&P 500 ETF (exchange-traded fund), which effectively lets you invest in the broad market.
How much wealth can you grow if you're first investing in your 60s?
You may not manage to grow a ton of wealth prior to retirement if you're first starting to invest in your 60s. But remember, it's not as if you're going to withdraw your entire portfolio the moment your career comes to an end. So rest assured that during retirement, your portfolio can continue to grow.
That said, to give you a sense of how much money you can accumulate in time for retirement, let's assume you're able to start investing at age 65 with a retirement at age 70. Let's also assume that during that time, your portfolio generates an average annual 6% return. That's well below the stock market's average annual 10% return, but remember, you probably won't have more than about half of your assets in stocks.
Now let's say you're able to invest $600 a month during that time. That would leave you with a portfolio worth about $40,600. However, if you're not retiring until age 74, that would mean building your portfolio up to about $83,000.
That's not a ton of money in the context of retirement. But it's far better than retiring with no nest egg at all.
Of course, if you're able to invest more money every month, you can kick off retirement with a lot more. Socking away $1,000 a month from ages 65 to 74 at an average annual 6% return will leave you with about $138,000. That's more than the average 70-something's retirement plan value today, which is $113,900, according to Northwestern Mutual.
It's always a good thing to give your portfolio lots of time to grow. But it's also far better to start investing in your 60s than to never invest at all. So rather than dwell on missed opportunities, look forward -- and do your best to pump as much money into your portfolio as you can.
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