I was at one time in my career a financial advisor working with a major U.S. bank. It was my job to help people decide on what investment choices were best for them, how much to invest, and how safe or risky those investments might be. That put pressure on me, but even more pressure on my clients who were risking their hard-earned money. I gave the best advice I could for each individual, but here’s the fact: no one knows with certainty exactly what will happen when you invest in the stock market.
So the real question is “Can you make good investment choices that will grow your money?” That’s the subject for today, but first let me tell you that I’m retired and no longer a financial advisor. And secondly, today’s post does not take into account the specifics of your situation and should not be considered financial advice.
How Do You Choose an Investment?
When it comes to investing your money in the stock markets, there are many nuances that make the decisions difficult. Besides the obvious big one, “Which investment is the right one to pick?”, you always will wonder if you really can make money during the time that you commit it and whether it’s too much of a risk for you when you do.
Unless you are very unusual and follow the markets all the time really closely, you will probably have to depend on some financial advisor to help you decide what to do.
Or you can try to follow what’s talked about on television networks like CNBC, read financial publications and market newspapers like the Wall Street Journal, and/or scour the internet for specific info about stocks and bonds and funds when you make your investments.
You can attend in-person events about investing or even watch webcasts on the internet or read financial bloggers that give advice.
Today, in this era, you can invest your money by simply signing up at an online site or app and buy your investment for low or even no transaction fees and you are on your way! It’s simple, easy, and of course, risky.
In reality, I hate to say it, but it’s a lot like going to Las Vegas and spinning the roulette wheel. Someone may win, but lots can lose every time.
The Best Time to Invest Is…?
The best time to invest, in my opinion, is when you have steady income, have saved up some money for emergencies, and are now looking at growing money for a big goal in your life. It’s another way to increase your wealth and have more money for something like your retirement fund, even if it’s decades away from right now. That’s why you are in a position to take some risk with your money.
One of the critical tools that is used to decide what investment you might choose is the “risk tolerance” evaluation financial advisors use and ask you about to help guide your choices.
Risk assessments pinpoint exactly how much risk an investor has. It tries to objectively pinpoint an investor’s risk number. Know what your risk tolerance number is when you actually invest.
Are Your 30s and 40s the Best Times for Long-Term Investments?
Simply put, it is generally a good time to invest during your biggest earning growth years. You may already be investing in your employer’s stock and/or 401(k) retirement plan (you should be!), but this investing on your own is different and feels riskier. Unless you are being expertly advised, I suggest investing in mutual funds.
A mutual fund is an open-ended, professionally-managed investment fund that pools money from many investors to purchase many securities. Mutual funds are the largest proportion of equity of U.S. corporations.
Solid mutual funds with good growth track records over long time periods are less risky than picking stocks individually because they are made of many funds that cover several market segments all inclusively.
You buy them and then you can add money to them regularly. Then, watch them grow for the next 30–40 years. There’s really not much more to smart long-term investing than sticking to time-tested saving and investing practices and taking advantage of compound interest that long term periods offer you.
What Are the Benefits of Mutual Funds?
By the time people reach the age of 30, they have either started investing for retirement or are seriously thinking about it. There is no one-size-fits-all investment strategy for anyone. But there is no doubt that mutual funds are one of the best investment choices for savers of all kinds. Here are some of the reasons mutual funds are best for 30- and 40-year-old investors.
Investors in their 30s and 40s typically don’t have large nest eggs or complex financial needs yet. It is the time when you may be too busy to learn more about investing. Follow the KISS rule: Keep It Simple, Stupid!
Mutual funds hold dozens or hundreds of securities, such as stocks and bonds. You can get started with one fund or easily build a diversified portfolio with just a few funds.
There is very little money or financial skill needed to buy mutual funds. You can find low-cost funds and start investing for as little as $25, the cost of a share. These funds don’t require a broker or advisor to buy. The only thing needed to invest in mutual funds is money and a few minutes to open an account.
Mutual funds are not just investment choices for people starting to get serious about investing, they are also used by professional money managers and expert investors around the world. It may be the way you should start, but it is also a path to follow for years and years.
What Are the Best Fund Types?
People in their 30s and 40s typically have at least 20, 30, or 40 years before retiring. So they are long-term investors. All investors should be aware of their own investment goals and risk tolerance. But the longer you have until you need your money, the more aggressively you can invest. That’s because you have time to rebound from losses. Here are the basic types of funds middle-aged investors are wise to consider:
1. Target Date Funds
These funds invest in a mix of stocks, bonds, and cash. They change their asset allocation as they get closer to the target date. When the target date nears, the fund manager will decrease market risk by shifting assets out of stocks and into bonds and cash. This is what an individual investor would do. Target-date mutual funds are a type of “set it and forget it” investment. Say you think you may retire in 25 years. A good choice for you might be Vanguard Target Retirement 2045 (VTIVX).
This fund, for example, has had excellent long term growth and in the past three years has increased in value about 35%. That even included a brief period when it declined in value by 20% and then rebounded to a new high over the next 18 months to its present value.
Yes it can decrease and increase at any time, but in general you can stop researching such a fund and just keep adding new money to the fund and watch your nest egg grow as you go about living life.
2. Balanced Funds
Also called hybrid funds or asset allocation funds, these are mutual funds that invest in a balance of stocks, bonds, and cash. The allocation usually remains fixed and invests according to a stated investment objective or style. For instance, Fidelity Balanced Fund (FBALX) has an asset allocation of about 68% stocks, 30% bonds, and 2% cash. This is considered a medium risk or moderate portfolio. If you had purchased this fund in 2011, ten years ago, it would have increased in value over 80% since then.
3. S&P 500 Index Funds
Index funds can be a great place to begin building a portfolio of mutual funds because most of them have low expense ratios. They can give you lots of stocks in many industries in just one fund. This helps you quickly develop a low-cost, diversified mutual fund. S&P 500 index funds follow the 500 largest public companies in the U.S.
4. Sector Funds
For those middle-aged investors with relatively large nest eggs, such as $100,000 or more, a fully diversified portfolio might consist of a few broadly diversified index funds. It’s worth thinking about adding sector funds to the mix. They focus on industrial sectors of the economy, such as healthcare, technology, or utilities. When investing in sectors, you don’t want to allocate too much to any one sector. Use two or three sector funds and allocate around 5% of your portfolio to them.
Where to Buy Mutual Funds
You can buy mutual funds at virtually any fund company or brokerage firm that offers them. You can use a no-load mutual fund company that does not charge commissions. Consider mutual fund companies that have a wide range of mutual fund categories and types. You will need to keep building your portfolio for diversification.
Some of the best no-load mutual fund companies include Vanguard Investments, Fidelity, and T.Rowe Price.
Now in my 70s, I am not an investor in the markets as I was when I was younger. In fact, I literally just only dabble in a self-directed portfolio through my bank and of course I pay nothing for that in fees. My investments are minimal because I have no risk tolerance now at all in my retirement and I am playing in it just to keep my finger in the pie. That may be different for you.
Yes, you need to invest is solid investments to form your portfolio and prepare yourself for big goals like your retirement. How you do it is the question along with what investment choices you feel comfortable with right now.
If you think that investments in stocks, bonds, or funds related to “infrastructure” are good investment choices, now would be a great time to look into them before they begin what appears to be a climb in value as we lock down legislation that will grow them over the next 10 to 20 years. That’s my best guess right now. But remember, it’s just a guess.
Are you ready to invest right now? Have you studied the markets yourself or are you seeking investment counseling to feel more secure? What are your goals and when will you need that money for them? Have you asked yourself about your risk tolerance and do you know what it is?