“Risk comes from not knowing what you’re doing.”
– Warren Buffett
Investing can be a lot like navigating the open seas—sometimes smooth, sometimes a bit rough, but always easier with the right crew. As life shifts, so should your investment strategy. Here’s a guide to help you chart a steady course through each phase of your financial journey.
Early Career: Setting Sail with Aggressive Strategies
For many, in your 20s and 30s, your financial adventure is just beginning! Time is your greatest ally, so it’s the perfect moment to steer into the wind with a more aggressive approach. This means focusing on stocks and equity funds, assets known for their potential to deliver high returns but with a bit of a thrill (or market bumps) along the way.
Consider making the most of employer-sponsored 401(k) plans—especially if your employer matches your contributions. While juggling obligations like student loans, rent/saving for a home, and car payments make it difficult, remember that every dollar saved now has decades to compound. The wind is on your side! Take advantage.
Mid-Career: Navigating with a Balanced Approach
As you reach your 40s and 50s, you’re moving from explorer to seasoned captain. You still have years ahead for growth, but it’s time to think of preserving. This means gradually balancing your portfolio with more conservative investments, without abandoning the growth you still need.
Once in your fifties, consider “catch-up” contributions to add additional funds toward your retirement. This is also a time to set a course for future goals like funding your children’s education or defining your dream retirement. You’re still building but with a bit more ballast.
Approaching Retirement: Steering Toward Conservative Waters
As retirement approaches, your financial adventure calls for a course correction. In your 60s and 70s, it’s time to protect what you’ve amassed by shifting to a more conservative investment strategy like bonds, fixed-income funds, and dividend-paying stocks. These assets are like a reliable crew—steady and predictable, helping you avoid choppy market conditions.
If your portfolio still feels like it’s riding the rough seas, this is the stage to smooth things out. Consistent, lower-risk investments can provide steadiness, and it’s time to think about your withdrawal strategy. After all, the best retirements allow you to enjoy the view without worrying about the waves.
Retirement: Smooth Sailing with a Conservative Portfolio
Welcome to the shores of retirement! At this stage, typically your focus shifts to capital preservation and generating reliable income. A conservative portfolio of bonds, income-generating funds, and secure stocks will help provide that stability. While creating your withdrawal strategy, it’s important to understand what “net” your money falls into. Is it tax-deferred, meaning you will have to pay ordinary income tax on all distributions? Is it taxable, meaning you will incur taxes on any growth? Or lastly, is it Roth money, meaning you have no obligations to take it out, but if you do, have no tax consequences? Creating a withdrawal strategy is key at this stage.
Charting Your Course with Covenant Trust
Each stage of life has its own challenges, priorities, and rewards. When you work with a financial advisor at Covenant Trust, they can provide the compass, the map, and the crew to help you achieve the future you envision.
Key Takeaways:
- Tailor your investment strategy to align with your goals, risk tolerance, and stage of life.
- Understand your accounts and what “Net” they fall into – Nonqualified, Tax-deferred, Roth, etc.
- Make the most of employer-sponsored 401(k) plans, especially with employer matching.
- Plan strategic withdrawals to optimize tax benefits during retirement.
If you or someone you know is looking for help to navigate each chapter of your financial voyage, ensuring a prosperous journey and a secure future, Covenant Trust would be happy to help. Just give us a call.