What are some aggressive investment strategies
Investment strategies for professionals aged 40 and over
Turned 40 recently? If you want to retire at 65, you are almost in the middle of your professional career. It is time to look at your financial future and see if you are on the right track.
People in this age group often ask us the following questions:
"Am I saving enough for retirement?"
"What is the ideal investment strategy for people in their 40s?"
"Should I invest conservatively or aggressively?"
"How aggressively should I invest?"
“What is the best wealth strategy for 40 year olds?
Before we dive in, good news: at the age of 40 you still have enough time to increase your savings - if you do it right. In this article, we'll show you how to retire with a substantial financial cushion - without giving up the activities you love (it's about working smarter, not harder).
Rule # 1: Don't invest in your bank account
Take Anne, for example - a 40-year-old working woman. Anne did (almost) everything right, and she has 100,000 francs in the bank. She doesn't need this money in the short or medium term; it is intended for retirement.
In order to be able to live comfortably, Anne has set herself the goal of retiring at the age of 65 with CHF 1,000,000. This would give her an annual income of around 50,000 francs for 20 years, in addition to the payments from the old-age insurance system (aka "AHV", pillar 1) and the pension fund (aka "BVG", pillar 2).
Anne's goal is very realistic.
But she should do one thing immediately - take the 100,000 francs out of the bank, where she receives almost zero interest!
Not only is it missing an opportunity to increase its savings, but it is facing the problem of inflation.
Let's say inflation remains at today's rate of 0.7 percent per year, and a typical Swiss bank account continues to offer a 0.01 percent return. So in five years you will need 10,350 francs to buy what you could have bought today for 10,000 francs.
In the meantime, your bank account has only grown to CHF 10,005. In other words; You will be poorer than when you deposited your money.
Rule # 2: Don't invest too conservatively
What is the best investment strategy for 40 year old women? There is no one size fits all investment strategy for Anne's demographic. Age is one of many factors that Yova takes into account when designing an investment strategy - age is an important factor because it is directly related to a person's investment horizon.
At 40, Anne's investment horizon is around 25 years (more or less). Since she has to access her money when she retires, this is when her investments are converted into cash. After all, retirees don't have the luxury of waiting for the market to recover after a collapse!
However, we often see that people in their forties are overly conservative with their investments - they keep large sums of money in their bank accounts or invest in investments that offer very little growth.
That is understandable. With the global financial crisis in their mind, some people tend not to take risks in financial dealings on the stock market.
But did you know how long it took for the stock market to recover after the financial crisis?
Take, for example, the most unfortunate investor who went public in 2007 at the very top of the stock market. How long did it take to make a profit?
Only four and a half years.
As this graph shows, investors who weathered the storm for a few years soon made strong gains again.
Development of the stock market 2006-2017
When we look back at the 1929 stock market slump that triggered the Great Depression, the graphs look like it would take more than 25 years for the market to recover. However, the investigation reported by the New York Times found that investors were already out of the red after four years and five months, taking into account the dividends received and the consumer price index.
Of course, past performance is not a reliable indicator of future performance, and it is important to understand that any investment you make could also lose you money.
Rule # 3: Distribute Your Assets Correctly
After Yova has determined Anne's risk profile, Yova will decide how to split her investment money between stocks and bonds (Read more: Why stocks and government bonds?).
Stocks are the more aggressive or "dynamic" option as they tend to rise or fall on a daily basis. Bonds are more conservative because they have better long-term stability. However, they show less growth than stocks over the long term.
The stock markets achieved average returns of 6% per year over the past 150 years. But as already mentioned, some of these 150 years were tough: the stock market crash of 1929 and the global economic crisis that followed, Black Monday 1987 and the financial crisis of 2008.
The question is not whether to invest aggressively or conservatively. For now, we recommend Anne for a balanced approach. She has a reliable income and a long investment horizon ahead of her. But she also has dependent children and other financial obligations. For this reason, we would normally recommend that she split her investment between the stock market and bonds that are less volatile.
What is the ideal asset breakdown for someone around 40?
A general investment rule is to subtract a person's age from 100 (or 110 for those with a higher level of financial risk tolerance). The answer is the typical percentage that a person should hold in stocks. The rest should be invested in high quality government bonds and other investments that are more stable (although they also have lower yields).
Simply put, that would mean Anne could consider putting 60 percent of her money in stocks and 40 percent in bonds. It would also need to include other investments made, including real estate, in determining its ultimate asset structure.
Rule no. 4: Save - just 100 francs a month makes a big difference
Many people reach their peak incomes between 40-50. You can then go overboard and buy beautiful things - from clothing and technical gadgets to cars and vacations.
And that is great!
We don't want to dampen the fun you're having. You just have to be aware that the investment contributions from the age of 40 are early deposits; they let compound interest grow. If you have invested in the stock market in the past, those deposits have doubled about every 10 years.
(We discuss compound interest in our article The Easiest Way to Double Your Money).
Do you think you can save an additional 100 francs per month? Or 500? Both options will increase your investment significantly and with Yova you won't pay any additional fees when you increase your investments.
Although small savings habits can have a major impact on your investment returns, there is another very common phenomenon: so-called "lifestyle inflation". This means that your expenses increase along with your income (e.g. if you used to ride a bike, you are now driving a newer model).
If you take this unchecked, the increase in your lifestyle can make it difficult to meet your long-term financial goals.
In addition to her initial investment of 100,000 francs, Anne has decided to deposit another 500 francs a month into her investment account.
It's an excellent approach. With your new savings plan and your investment strategy with Yova Your investment will increase to more than CHF 1,000,000 in 25 years by the time you retire.
Anne's investment growth
|Asset class||Year 0||Year 1||Year 10||Year 15||Year 20 <||Year 25|
Source: Yova. All information in Swiss francs. The figures are rounded.
Anne will achieve her savings goal!
This chart is conservative, by the way, as it involves annual rebalancing (important for risk management) and the consideration that the older Anne gets, the more of her investments are likely to be in bonds.
Quick guide: the best investment strategy for professionals in their 40s
- Set yourself a goal: How much income do you need in retirement?
- Allocate your assets correctly - find the right balance between conservative and aggressive investing.
- Set up an automatic investment contribution so that your money grows.
It's easy to get started with Yova. First of all, create your personalized investment strategy. together - free of charge and without obligation. Choose impact topics that are tailored to your values and interests. You can take a look at every single stock and bond and find out why we recommend them to you
The best part is that Yova strategies are tailored to your personal interests and values - with criteria such as renewable energy, electromobility, human rights, equality and many more.
Receive your free investment strategy.
To ask? Check out our frequently asked questions or contact our team.
Disclaimer: Past performance of financial markets and instruments is never an indicator of future performance. The statements or information in this document do not constitute a recommendation, offer or solicitation to buy or sell any security or financial instrument.
Yova AG does not assume any liability with regard to the reliability and completeness of the information in this article. Liability claims against Yova AG for damage resulting from the use of the information published in this document are excluded. In addition, the statements contained in this document reflect an estimate at the time of publication and are subject to change. References and links to third party websites are outside the area of responsibility of Yova AG. Any responsibility for such websites is rejected.
Erik GloerfeldFounder - CPO
Erik has been interested in sustainable business for 7 years. Before founding Yova, Erik worked as an independent entrepreneur for more than 1 year, during which time he launched the Lapel & Tie project and took over the expansion of the GreenBuzz initiative.
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