3 tips for investing in your 50s
The years in your 50s are pivotal ages on the road to retirement. At this stage of life, you may be making plans for how you'll spend your senior years and when you'll close out your career. You might also be grappling with college tuition payments for your children or other expenses that eat up a lot of your income.
That's why it's important to invest strategically during your 50s. And these three moves could set the stage for retirement success.
1. Keep buying stocks
You've probably heard time and time again that as you inch closer to retirement, you should start moving away from stocks and start favoring conservative investments, like bonds. But actually, there's no reason to shy away from stocks completely during your 50s, especially if you're not intending to retire until your mid-60s or beyond.
Quite the contrary: During your 50s, stocks should still be about 50% to 60% of your total portfolio -- a little more if you happen to have more of an appetite for risk.
That said, don't buy stocks in your 50s that you don't plan to hold well into your 60s or later. Rather, look at quality stocks that offer their share of long-term value. Dividend stocks are also a good bet and will give you money you can keep reinvesting to grow your wealth.
2. Make sure your portfolio is diverse
A well-diversified portfolio is key at any age, but the older you are, the more important it becomes. If the stock market takes a major tumble shortly before you're set to retire, a more diverse mix of investments could help minimize any losses you may be forced to take.
Not only should you aim for a mix of stocks and bonds from varying market sectors, but you should also consider low-cost index funds, which effectively allow you to acquire a bucket of stocks or bonds with a single investment.
3. Take advantage of catch-up contributions in your IRA or 401(k)
You have choices when it comes to investing during your 50s. You can pump money into a traditional brokerage account or ramp up your contributions to your retirement savings plan. The latter is a smart idea from a tax perspective, because traditional IRA and 401(k) contributions go in tax-free, and investment gains are tax-deferred.
Meanwhile, Roth IRA and 401(k) contributions aren't tax-free, but investment gains and withdrawals are. And if you're already in your 50s, you won't have to wait too long to cash out your investments should you need to -- you can begin taking penalty-free withdrawals starting at 59 1/2.
In fact, one benefit of being in your 50s is getting to contribute more to an IRA or 401(k) than your younger counterparts. Specifically, you can put an extra $1,000 into an IRA or an extra $6,500 into a 401(k). It pays to make these catch-up contributions if you're able, especially if your retirement savings got off to a slower start.
Investing strategically during your 50s could set you up for a secure retirement. Whether you're new to investing or have been at it for years, the above tips will set you on a solid path -- and hopefully put you in a position to enter your senior years a lot wealthier.
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