Interested in Stock Market Gains? Here’s the Average Stock Portfolio for People in Their 40s

Everyone wants their money to grow in value as much as possible, but our ideas on how to do that can differ considerably.

The stakes are generally even higher when we hit our 40s. At that age, the average person has reached or is close to their peak earnings and is close enough to retirement that it’s no longer so abstract. How does the average American in their 40s invest for their future? According to Empower, mainly through stocks and alternative investments.

Typical Portfolios of Those in Their 40s

This fall, Empower collected user data to determine how people are investing by age group. The portfolio mix reflects the average split for those in their 40s:

How Much Should Someone in Their 40s Have Invested

Experts often use multiples of annual income as a guide to stay on track for retirement. The standard advice shared by the likes of Fidelity, Equifax, and T. Rowe Price is that by your mid-40s, you should have three times your current income set aside for when you stop working.

That means if you earn $70,000, you should already ideally have $210,000 set aside. Conversely, if you earn $100,000 or $40,000, you should have $300,000 or $120,000 saved, respectively.

Of course, this is just a rough guide—not a one-size-fits-all rule. Your actual needs depend on your income, expenses, and so on.

How Should You Divide Up Your Portfolio?

Ask most financial experts how an investment portfolio should look in your 40s, and they’ll probably say between 70% and 80% of your investments should be in stocks, with much of the rest in bonds.

The reason younger people are advised to invest more in stocks is because of their higher potential for growth. Without accounting for inflation, the S&P 500 has delivered an average annual return of over 10% since 1957, while U.S. bonds, from 1926 to 2023, generated average annual returns of 5%.

If stocks can help our money grow much faster, why are we told to gradually increase our holdings in bonds as we get older? The main reason is that bonds are less susceptible to big sell-offs that can take some time to recover from.

The last thing you want, experts generally agree, is to retire in the middle of a bear market and have no choice but to withdraw your money from stocks currently trading at market lows.

Improving Returns Without Taking Excessive Risk

There are ways to improve your returns without adding highly risky assets to your portfolio. Empower recommends spreading risk by investing in a balanced mix of stocks, bonds, cash, and alternative investments, such as real estate investment trusts and commodities. It also advises regularly monitoring your portfolios, rebalancing them when they stray from your desired mix, and resisting the urge to time the market.

T. Rowe Price, meanwhile, suggests people in their 40s contribute as much as they can to retirement accounts, supplement savings with an account where you pay taxes beforehand, such as a Roth IRA, and put a good portion of their portfolio in stocks, given there are still several decades to go until retirement.