Are you too old to start investing?

The answer is a resounding No!

Sure, you need to carefully consider which type of investment is going to suit your situation best but there are many investment strategies available from which to choose. Each one comes with advantages and disadvantages; the trick is to limit the disadvantages to achieve the best result.

What’s the absolute top investment strategy available?

The fact is, there’s not really one universal strategy that tops all the others. As we said, they all have pros and cons. One investment might do better at times but then another will take its place, largely dependant on the prevailing market conditions. This is one of the reasons why investing is considered a long-term financial strategy rather than a quick-fix solution. There are always highly speculative opportunities out there that offer huge returns; the downside is that come with equally huge risks.

Big investment tip – never risk more than you can afford to lose. It simply isn’t worth putting all your retirement savings on a high-risk investment; you could lose the lot and then you would really be behind the eight-ball. 

Every investor is unique; this is why there is no one-size-fits-all strategy for investment. Some people are happy to sit with a 5% return for decades while another wouldn’t dream of accepting anything less than 10%. The only way to increase the return you get on your investment is to take on a strategy with greater risk; that isn’t an option for many.

Basic Investment Strategies

Here are some of the basic investment strategies that people use:

1. Use the growth strategy where you buy stocks in a company that has great potential for growth. Your goal is to achieve capital appreciation rather than get good dividends. This would be a great strategy if you are investing in your 40s or 50s so you could sell your stocks to fund your retirement or to reinvest.
2. Make your goal to create an income from your investment. Generally, this goal is best achieved with corporate or government bonds. These provide you with a pre-determined interest payment for the term of the bond. They are a low-risk investment with regular returns. Another advantage with bonds is that you can get started with a relatively small amount of money. Some stocks also pay regular dividends.
3. Increase your value. Seek out securities that seem to be undervalued or have the potential to increase in value. You purchase when the price is low and sell when it goes up, thus making a profit.

One of the best ways to invest for your retirement is taking advantage of the tax incentives of retirement accounts.

For USA Investors

An employer-matched 401k allows you to contribute up to $22,000 if you’re over 50; whatever amounts your employer adds to this is basically free money. Traditional IRAs allow your contributions as a tax deduction while you are working. Roth IRAs allow tax-free withdrawals on accounts that are more than five years old. Take advantage of these tax concessions to increase your retirement dollars.

For Canadian Investors

Certainly one of the most effective ways to trim your tax bill is to make an annual contribution to an RRSP, which you can deduct from your gross income. And you can invest the income tax return you’ll likely receive, and in the meantime the funds you’ve invested in your RRSP continue to grow.

While RRSPs are a great tax shelter, be careful what you put into a registered plan. That’s because while interest income is taxed at your highest marginal rate, dividends and capital gains are taxed at a far lower rate. Since investment income held within an RRSP remains fully sheltered until withdrawal, it generally makes sense to hold highly-taxed investments inside your RRSP and investments that produce dividends and capital gains, which are taxed at a lower rate, outside of an RRSP.

The Misconceptions About Investing

One misconception that many people have is that there simply isn’t enough time to start investing when they are already 40 or 50 years old. While it is certainly true that starting in your 20s will yield the biggest retirement nest egg, it’s also true that, as an over 40 worker, you still have anywhere between 10 and 30 years still left in the workforce. Don’t let your age stop you from making a start in investing now.

Another thing most people don’t consider is that you don’t need to cash in all your investments just because you retire. If you keep some investments, you can use the earnings for day-today spending, while keeping your principle intact to continue to work for you. This would apply to both the growth strategy and the income strategy. Keeping some investments into retirement gives you the security of knowing you still have a nest egg to fall back on. Retirement is usually calculated as lasting for 20 years – that’s plenty of time for the investments you put down today to compound and grow.

OK, let’s crunch some numbers to show you what I mean.

–         An investment earning 5% interest will double in 15 years.

–         An investment earning 4% interest will double in 18 years.

–         If you put $500 a month into an IRA or RRSP earning 4%, you’d have $74,000 in 10 years time.

–         At 40, if you save $2,000 each year in a mutual fund that pays 12%, by the age of 65 you will have over $330,000. Two years later, if you left the investment in place, you would have nearly $430,000.

Whatever investment strategies you decide to use, it is important that you keep a varied portfolio; that is, one with a variety of different types of investment so you are not at risk in any one area. There’s no need to try and make up for lost time; the examples above have shown you that there are investment strategies that you can take now, which will help you fund an enjoyable retirement.

So, if you are in your 40’s, what investment tricks have you found to be profitable? I would love to hear what they are.