Investors entering their 40s are faced with multiple competing priorities – increased income, yes, but also increased expenditure related to growing families.
In some cases they are also caring for their parents alongside children, while managing retirement planning. In the 40s, it’s time to ensure you have the right savings habits and are invested at the appropriate risk levels in order to meet your goals.
"For some, taking retirement planning seriously might still be a bit of a challenge," says Christine Benz, Morningstar's director of personal finance.
"In your 20s and 30s the concept of retirement is somewhat nebulous but in your 40s it starts to feel a bit more real.
"At that point your parents are probably either approaching or in their eighties so you would have seen first-hand how their retirement played out. If you’re planning to work until age 65 you still have enough time to effect positive change, but you can no longer afford to ignore it altogether."
Some of the questions in your mind may include:
• How much do I need to invest from here through to retirement?
• What is the right asset mix for my phase of life?
• What should I do to protect against loss, such as losing my job in a recession?
To help with some of this, the team at Morningstar Investment Management has some tips:
7 Actions for Investors in their 40s to Consider
Visualise your future: investors in their 40s can feel absorbed by the present and disconnected from their future. It helps to imagine your life a decade into the future. Then, estimate the cost of the life you want.
Behavioural coaching: research shows that behavioural coaching can add meaningful value. Or conversely, bad behaviour is destructive. To avoid bad outcomes, focus more on the principles of good investing and associated habits.
Consider different portfolio combinations: meeting goals is an individual experience and tracking the TSX Composite, or S&P500 is not for everyone. Embrace portfolio combinations you fell positive about, but don’t overcomplicate your investments.
Make sure you’re taking enough risk: investors in their 40s typically have a large capacity for loss but may have a more modest risk tolerance. Aligning your risk tolerance, capacity and goals are key in this decade.
Shift the conversation to value drivers: could you benefit from broader financial planning? All too often, we think about investing first, but taxes and insurance are also prominent areas to address.
Reconfigure the "why" of investing: goals are a north star. Research shows that 71% of people change one of their top three goals by doing a simple review comparing to a master sheet of common goals.
Consider inflation: after inflation, cash is often a terrible investment, eroding the purchasing power. With cost-of-living increases, could a real return strategy work?
