Best Ways To Invest Your Money at Every Age

For many newcomers, the world of investing is vast and overwhelming. There seems to be a lot at stake, and it can be especially hard to keep track of best practices when one’s goals, income, and risk tolerance change over time. Fortunately, some of the most effective investing practices are also among the most straightforward.

Most potential investors can benefit from a passive approach: sticking with age-appropriate, diversified strategies that adjust over time to match shifts in income, spending, and goals. With minimal effort, everyday investors can adjust their asset mixes over time to ensure the smoothest possible path toward building wealth.

Investing in Your 20s: Start Strong, Stay Consistent

It’s easy to overlook investing in your 20s. After all, this is the decade when many young adults will be looking for a first job and launching a career—retirement and other long-term savings goals can feel especially far away. However, making an early start to long-term growth investments can pay off in a big way thanks to the power of compound interest.

The longer a slow, steady growth investment—such as a stock-heavy index or mutual funds, or target-date funds offered as part of a retirement plan—is in the market, the more opportunity it has to generate returns, and then for those returns to continue to generate their own returns, and so on. These investment vehicles are also a great choice because they tend to be professionally managed and rebalanced, ensuring a simple process for everyday investors.

For example, consider a hypothetical investment of $20,000 made by a 25-year-old. If that investor holds that investment without ever drawing from it or adding anything to it, and if that investment grows by about 6% per year (which may be a conservative estimate over many periods in the history of the stock market), that initial investment will turn into nearly $206,000 by the time that investor reaches 65 years. 

On the other hand, if that investor waits until she is 35 to invest—thus only having 30 years of investment time until she reaches 65—the investment will only grow to $115,000. While $20,000 to $115,000 may sound like a lot, consider that holding the investment for another 10 years could nearly double it. Compounding is an advantage that younger investors have over their older peers. An investment calculator can help to illustrate the power of compounding further.

There are other ways investors in their 20s can get a head start. Melissa Caro, CFP and founder of My Retirement Network, suggested that young investors start an emergency fund of three to six months of expenses early. She said this is “not just for safety, but to build the habits that carry you through later decades.” 

Along with that, Caro recommended that investors “automate contributions” to “let time and compounding work.” Recognizing that it can be difficult to set aside money for investment early in a career, Caro said, “These years are less about perfection and more about establishing behaviors you won’t have to undo later.”

Investing in Your 30s: Grow While Managing Risk

Investors in their 30s have a growing degree of career experience (and, often, rising income), but this is counterbalanced by emerging financial responsibilities. These may include costs associated with weddings, children, homeownership, mortgages, car payments, etc. 

While your 30s can still be a time to focus on a portfolio aiming for aggressive growth, it’s essential to diversify across asset classes at this time. Besides stocks and bonds, consider alternatives including commodities, exchange-traded funds, and even more advanced or riskier products like futures, options, or crypto.

Another key thing to remember in your 30s is the power of an employer’s contributions. Maximize an employer retirement contribution to ensure you get the highest percentage possible—this is essentially free money for those with jobs that include these types of contributions.

For Scott Bishop, MBA, CPA/PFS, CFP, and partner of Presidio Wealth Partners, investors in their 30s should “transition from pure accumulation to strategic thinking. Learn your investment biases, master asset allocation, and treat every market downturn as a classroom for understanding your real risk tolerance.” 

A growth-focused portfolio leaning toward a diversified pool of stocks is a great choice. And as tempting as it might be to hold lots of cash, keep in mind that its value will erode over time due to inflation unless it grows as an investment.

Investing in Your 40s: Sharpen Retirement Focus

In your 40s, there is still time to get on track with investments if you have been lax in the past, but it’s important not to wait any longer than necessary to do so. Most investors in their 40s have a shifting risk tolerance relative to their younger years, and this means reallocating portfolios to begin to favor safer asset classes and strategies.

The 40s are peak earning years for many investors, but expenses also mount. Besides those that emerged in previous decades, it may be necessary to consider setting aside funds for elder care for aging relatives. For those with growing children, investing money for college through a dedicated education savings account can help to set the younger generation up for financial success.

Jamie Bosse, CFP, RFC, of CGN Advisors, recommended that investors watch out for tax-advantaged accounts like FSAs and HSAs. Optimizing tax efficiency through Roth or traditional accounts can help to maximize your investments. Bosse also cautioned investors to “guard against lifestyle creep,” adding that you should “make sure your savings rate rises along with your paycheck.”

Investing in Your 50s: Protect and Prepare

As your time horizon to major financial goals like retirement gets shorter, it’s vital to shift to a more conservative portfolio allocation. Lower-risk assets like bonds help ensure you can protect your investments in case of unexpected market downturns.

Though it may not be the most comfortable set of conversations to have, investors in their 50s should also consider how they plan to protect and pass down their assets to the next generation. It’s a good idea to begin to review the process of estate planning—make sure a will, power of attorney, advance directive, and other similar documents are in place and up to date, and have conversations with family members about your expectations and desires. Planning ahead of time can save them hassle, frustration, and cost down the line.

If you’ve made it to this stage of life and don’t feel adequately prepared for retirement or other goals you may have in mind, don’t fret. There is still time to make your investments work for you. By maximizing catch-up contributions to retirement accounts, you can make the most of the assets you have while you’re still working.

Caro urged investors in their 50s to make catch-up contributions, but added, “Don’t assume these are automatically your peak earning years. Asset allocation should be deliberate; reduce risk where needed, but don’t swing to extreme conservatism too early.”

Investing in Your 60s and Beyond: Preserve and Distribute

In later years, investors need not completely remove themselves from the market. Rather, it may be most helpful to look for income-generating investments such as certain dividend-paying stocks or real estate, which can help to offset a loss of regular income from reduced work or retirement.

As you plan for your shifting schedule and monthly cash flow, keep in mind that many retirement accounts have required minimum distributions (RMDs) to ensure that account holders receive regular payments. Caro added that these RMDs “don’t kick in until your 70s, but understanding their impact early helps.” It might be helpful, she said, to “think about bucket strategies—segmenting money for near-term cash flow, medium-term spending, and long-term growth.”

For those nearing or in retirement, the goal is not to beat the market, but rather to sustain a steady and reliable stream of income while reducing risks wherever possible. Bond ladders, annuities, or similar tools can help to manage these streams and your withdrawals.

The Bottom Line

Investors can achieve success at any age by following key principles, including ensuring time in the market rather than trying to time it. Automating investments and portfolio rebalancing are essential steps at all stages of life and help ensure your investments stay properly diversified and in line with your risk tolerance as it changes. By tailoring your investment approach to your age, you can make passive investing work harder throughout your life.