How To Invest in Your 40s

Once you get into your 40s, it can feel like your financial fate is sealed. But that's not necessarily true.

Fortunately, no matter where you’re at in your financial journey, there’s still time to make changes and work toward your money goals.

Let’s look at how to move forward with your finances in your 40s — including setting investment goals that can help you build retirement wealth.

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Start With Your Financial Priorities

Before you tackle investing in your 40s, review the other areas of your financial life. This can help you create a practical spending plan that also includes retirement investing.

Before diving into the stock market or other investments, do a self-check on your budget and fix any of the following:

Pay off high-interest debt

If you have high-interest debt, pay it down as much as possible — otherwise you’re just losing money in interest and fees, which prevents you from being able to earn interest on investments. 

Review your income and spending to determine how much you can put toward debt reduction. If you’re carrying multiple debts and are unsure where to start, the debt snowball method can help you decide on an order for your debt repayment.

Review your health insurance

Check your health insurance policy. Review your family’s needs and make sure you have appropriate coverage. 

If you have room in your budget and qualify, consider opening a Health Savings Account (HSA) to set aside tax-advantaged funds to help pay for unexpected healthcare costs.

Boost your emergency fund

If you don’t have three to six months’ worth of expenses, create a plan to set aside more money in your emergency fund. 

An emergency fund can help to cover you if something unexpected happens, such as essential car repairs, medical bills, or lost income — so you don’t have to turn to debt.

Store your emergency fund in a high-yield savings account (HYSA). That way, you can earn interest while still having quick access to funds when you need them.

Consider HYSAs like the SoFi Checking and Savings Account, which earns up to 4.00% APY or the CIT Bank Platinum Savings, which earns as much as 4.55% APY.

COMPARE: Best High-Yield Savings Accounts 

Plan for your children’s education

Be realistic about what you can do to help your child with their higher education. 

Sometimes, you can contribute to a 529 or some other education account. Otherwise, you might need to help your child prepare to apply for scholarships and other financial aid, including student loans. 

Communicate expectations to your child. Let them know you are doing what you can to help them while still protecting your long-term financial health.

Investing for Retirement in Your 40s

At age 40, retirement is roughly 20 years away. While you won’t be able to earn the same level of compounding returns that you would have if you had started earlier, it’s still not too late.

Here are some critical tips for investing for retirement:

• Start small: It’s okay to start small, especially if you’re working on paying down debt. The important thing is to get in the habit of investing ASAP. Decide how much you can set aside and be consistent.
• Use an employer match: If you work for a company that offers a retirement plan, especially one with a match, try to get the maximum. Your match is free money to help you grow your retirement account faster.
• Increase your contributions when possible: Once you’re more comfortable with your money or pay off some of your debt, increase your retirement account contributions. If you’re just starting investing in your 40s, increasing what you set aside is important to reach your goal.
• Make it automatic: Don’t try to remember to invest. Instead, automatically invest using your paycheck or set up regular transfers. That way, you’re building wealth without having to think about it.

READ MORE: How To Set Your Investment Goals

Choose the right investment account(s)

You need a place to keep your assets. One of the top places is your employer’s retirement plan (if you have one). This is usually a 401(k), although it might also be a 403(b) or IRA. 

If you haven’t maxed out your contributions to your company retirement plan, consider increasing your paycheck withholding as an easy way to boost your nest egg.

You might have two choices for tax benefits:

• Traditional: Contributions are made with pre-tax dollars. You get a lower tax bill today, and your money grows tax-deferred for the future. You pay taxes at your regular marginal rate once you withdraw money from the account during retirement.
• Roth: Make contributions with after-tax dollars. You don’t get a benefit today, but you can withdraw money from your account during retirement without paying taxes on it.

Depending on your strategy and preferences, you can even contribute to both types of accounts.

READ MORE: IRA Vs. 401(k): Which One Is Better For You?

You can also open a separate tax-advantaged retirement account outside of your employer’s plan.

Many online brokerages, such as Webull and Robinhood, offer IRAs that anyone can open. Consider this if you’ve maxed out your employer match or reached your annual contribution limit in a company plan.

Finally, consider using a taxable investment account. 

Many tax-advantaged retirement accounts require waiting until age 59½ to withdraw without a penalty. A taxable account allows you access to your money without penalty. 

READ MORE: How To Manage Your Own Investment Portfolio

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Manage your risk tolerance

You can still have a relatively high risk tolerance in your 40s, so investing in stocks may make sense for you. 

There are different rules of thumb regarding how much of your portfolio should be in stocks. The two most common are:

• 100 minus your age: Subtract your age from 100 to get an asset allocation for your portfolio. For example, if you’re 45, this rule says 55% of your portfolio should be stocks.
• 120 minus your age: Some experts have suggested adjusting the age rule due to longer life expectancies. If you think you’ll live longer in retirement or you want to build your retirement portfolio faster, you might have the risk tolerance to put 75% of your portfolio in stocks.

Consider using index mutual funds or index ETFs to manage the risk involved with stocks. 

Picking individual stocks is often riskier than using a broad-based fund or ETF. Rather than trying to get it “right,” a fund or ETF spreads out some of the risk with exposure to several assets in one, so your performance more closely resembles the overall market.

When investing in your 40s, it’s less important to “beat” the market than it is to see returns that potentially allow you to build a nest egg you can rely on in the future.

READ MORE: What To Look for When Buying Stocks

FAQs

What investments are best in your 40s?

The best investments for you, no matter your age, depend on your risk tolerance, goals, and how much you already have invested for retirement. 

For many in their 40s, index mutual funds or ETFs are often good choices.

How much should you have saved in your 40s?

There are different measures, but some experts suggest having four times your salary saved for retirement by the time you’re 45. This means if you make $50,000 a year, having $200,000 in your retirement portfolio is a good target.

TL;DR: Investing in Your 40s

It’s never too late to start investing and, in your 40s, you’re still young enough to see significant growth through compounding returns. The key, though, is to start now.

Give yourself a financial check-up. Pay down any high-interest debt and set yourself up with solid health insurance, then start investing into a retirement account — even if it’s only a small amount.

Consider index mutual funds and index ETFs that offer steady returns and reduce your risk, rather than putting all your money into trying to beat the market.

For more investing insights and advice at any age, check out these episodes of the Erika Taught Me podcast:

• Money & Investing Pitfalls to Avoid
• The Missing Piece in 99% of Financial Advice
• Investing Advice from the Most Powerful Woman on Wall Street

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