Investment Strategies by Age From the 20s to the 80s

Written By
G. Dautovic
July 14,2023

Investing for retirement is among the most important decisions you can make to secure your financial future. It's never too early – or too late – to start saving. The approach you should take depends on your age, risk tolerance, goals, and other factors.

While there isn't a universal rule, this article on investment strategies by age should give you a good overview of how to approach asset allocation for retirement savings. So, whether you're a millennial, a Gen Xer, or a baby boomer, keep reading to learn how to structure your investment portfolio. 

Asset Allocation by Age - General Considerations

Before you start investing in your retirement accounts, you need to evaluate asset classes and their pros and cons. Some common assets investors put toward their retirement income are stocks, bonds, cash, and cash equivalents. Real estate, futures, and commodities are other options.

The most suitable investment strategy typically depends on the volatility of the market. For example, investing in stocks is riskier than investing in bonds but promises higher earnings. That’s why investors prefer stocks when the market is booming. But when trading becomes rough, they take money out of the stock market and invest in bonds.

In line with this, you should always factor in the level of risk tolerance. Typically, a higher risk tolerance is more common to the millennial investment strategy than the baby boomer approach since the former have more time to compensate for potential losses.

Diversifying your investments is essential for your financial stability in retirement. As the saying goes: You should never put all your eggs in one basket.

Retirement Savings Options

You can choose from various types of investment accounts to save funds for your retirement, keeping in mind that an individual retirement account and a 401(k) are among the most popular ones. While the 401(k) is a retirement plan employers offer their employees, the individual retirement account (IRA) is a plan that a person establishes on their own without the employer’s involvement.

Both accounts provide certain tax advantages, but note that the annual contribution limit is $6,000 for traditional IRAs and Roth IRAs, while the limit for 401(k) is $20,500 in 2022. 

Investments by Age

Now that we've covered some aspects that you need to consider when you begin investing, let's see what your investment allocation by a particular age should look like. Note that the following personal finance information is just a general overview. If you have questions or concerns, it’s best to talk to a certified financial planner for a personalized investment plan.

Before you start investing, though, you'd do well to secure an emergency fund that could cover your expenses for at least a few months if something unexpected happens. 

Investing for People in Their 20s

When you start saving money for old age in your 20s, you can afford to take more risks since you have all the time in the world to make up for potential losses. So your retirement portfolio allocation should focus on stocks and a smaller percentage of bonds, cash, and cash equivalents.

For example, you can keep 80% of your portfolio in stocks and 20% in bonds if you're willing to take on more risk. On the other hand, some financial planners suggest putting 10% in cash at the expense of stocks. 

So, the ideal investment strategy by the age of 30 could be:

First Investment Strategy Second Investment Strategy
80% in stocks 70% in stocks
20% in bonds 20% in bonds
  10% in cash or equivalent

Furthermore, it’s advisable to do some research on different companies and determine the number of stocks you should own from each. Investing in stocks from multiple companies reduces risk and improves your chances of making more money down the line. Now, let's look at other essential considerations for people investing in their 20s.

Building a Financial Base

In this life stage, building a financial base is crucial for a solid retirement plan. If you invest wisely from the outset, the compound interest will augment the base as time goes by. For instance, if you decide to invest $10,000 as part of your stock allocation by the age of 30, the base could grow to several tens of thousands of dollars by the time you retire. 

Paying Off Existing Debts

If you have a remaining student loan and other debts to settle, it’s a good idea to pay them off before you start investing. Additionally, it's advisable to clear out high-interest debts as soon as possible because it would be harder to make money if you have to pay, say, 20% interest on the remaining balance.

Joining 401(k) Retirement Plan

Unless you're self-employed, consider joining your employer's 401(k) retirement plan. The way this plan works is that the company matches your contributions up to a certain percentage.

Investing for People in Their 30s

Investment strategies for people in their 30s reflect the fact that they are usually career- and family-focused during this phase of their lives. Although their financial goals differ from those of younger investors, the recommended portfolio structure is similar since time still works for this cohort.

In line with this, you should consider adopting one of the following investment strategies by age 40:

Approach No. 1 Approach No. 2 Approach No. 3 Approach No. 4
70% in stocks 60% in stocks 60% in stocks 50% in stocks
30% in bonds 40% in bonds 30% in bonds 40% in bonds
    10% in cash or equivalent 10% in cash or equivalent

If you’re in your 30s, now is the right time to start investing in retirement savings accounts if you had put off doing so in your 20s for whatever reason. There are still some 30 years before you retire, so maximizing the power of compound interest is still possible. As such, investing in your retirement portfolio by the age of 40 should be a top priority, even if you have to pay off your mortgage and plan to start a family. 

It will help if you put a 20% or higher down payment when buying a house to avoid exorbitant interest rates. Also, research college funding options to get the best education for your children without putting too much financial strain on the family.

Investing for People in Their 40s

Since investing in your 40s typically involves a drop in risk tolerance, the bond vs. stock allocation by this age should feature a slight shift in favor of security. Including other asset classes (cash, for example) is still worth considering.

Accordingly, most investors in their 40s who are saving up for retirement take one of the following approaches:

Approach No. 1 Approach No. 2 Approach No. 3 Approach No. 4
70% in stocks 60% in stocks 60% in stocks 50% in stocks
30% in bonds 40% in bonds 30% in bonds 40% in bonds
    10% in cash or equivalent 10% in cash or equivalent

The ideal investment portfolio for a 40-year-old investor may look different from these examples. Still, notice that the stock-to-bond ratio is lower than what's recommended for a 30-year-old investor. This is because 40-year-olds are usually ten to 15 years closer to retirement age, so they have less time to make up for losses if a market downturn occurs. 

Even though you may be paying off a mortgage or financing your kids' education, investing in your retirement should be a priority in your 40s. That’s why you should try to pay off your mortgage as soon as possible and think about opening an online brokerage investment account on a reputable trading platform to generate retirement funds.

Lastly, the generation X investment strategy usually involves putting as much money as possible into an IRA or 401(k) and securing a favorable match from your employer, if available.

Investing for People in Their 50s

Once you turn 50, you should shift toward a conservative investment, leaving the aggressive approach aside. In practice, this means you should opt for bonds instead of stocks. Still, keeping a certain number of stocks should be a good idea because of their higher growth potential, which bonds can't provide.

Taking this into consideration, your asset mix by the age of 60 should resemble one of the following patterns:

Asset Structure No. 1 Asset Structure No. 2 Asset Structure No. 3 Asset Structure No. 4 Asset Structure No. 5
60% in stocks 50% in stocks 40% in stocks 30% in stocks 30% in stocks
40% in bonds 50% in bonds 60% in bonds 70% in bonds 60% in bonds
        10% in cash or equivalent

Focusing on bonds and other investment options with low risk in your 50s is crucial because you're 10 to 20 years closer to retirement age. Helping protect your gains and avoiding high risk, a more conservative investment portfolio for a 50-year-old is highly recommended.

Now is the time to figure out how much you'll need for retirement and, if you haven't already, boost savings account contributions. Also, consider moving to a smaller home to reduce future living costs.

Investing for People in Their 60s

Fixed-income bonds are a good choice for a baby boomer's asset allocation because they offer stability and income during retirement. As you get closer to retirement age, stocks should only make up a small part of your portfolio. Also, you might keep a small amount of cash in your retirement portfolio as well. 

So, depending on your market risk tolerance and available savings, your retirement allocation by the age of 70 should look roughly like one of the below options:

Asset Structure No. 1 Asset Structure No. 2 Asset Structure No. 3 Asset Structure No. 4
40% in stocks 30% in stocks 30% in stocks 20% in stocks
60% in bonds 70% in bonds Around 60% in bonds About 70% in bonds
    Up to 10% in cash or equivalent Up to 10% in cash or equivalent

If you expect to retire soon, focus on a breakdown of your savings and plan withdrawals from different accounts. Take taxes into account to minimize costs. Finally, try to live on your projected income for some time before retirement to see if your strategy is sustainable in the long run.

Investing for People in Their 70s and 80s

Now that you're almost or already retired, you should focus on generating income rather than risking saved funds to obtain more profit. That’s why it’s best to prioritize bond holdings but also keep stocks that generate dividend income. Your asset allocation by the age of 80 should be similar to either of the below patterns:

Asset Allocation No. 1 Asset Allocation No. 2
30% in stocks 20% in stocks
70% in bonds 80% in bonds

Once you get to this age, you'll likely collect Social Security retirement benefits and a company pension, provided you have one. Also, you'll start taking required minimum distributions (RMD) from your retirement accounts when you turn 72. 

Closing Thoughts

Allocating retirement assets depends on various factors, including the investor’s age and how they define their investment goals. It’s important to keep in mind that portfolio allocation by age differs because younger adults can afford higher risks than older adults nearing retirement.

While it's natural to shift focus from stocks, which provide higher rewards but come with higher risks, to bonds as time passes. Ultimately, the final decision about the appropriate approach depends on each individual. Thus, consulting with a finance professional is always a good idea to get an expert opinion and develop an asset allocation plan that works best for you.


What is the 60-40 rule in investing?


Holding 60% in stocks and 40% in bonds in an investment portfolio is often called the "60/40 rule." By putting money into asset classes with different levels of risk, investors can find a balance between stability and growth. 

Where should a 70-year-old invest his/her money?


Assuming that the investor prefers to generate a retirement income rather than risk funds to get extra profits, a recommended portfolio allocation for a 70-year-old investor is 20% or 30% in stocks and 80% or 70% in bonds. Consult Fortunly’s full guide on investment strategies by age for additional tips for older adults.

What is the rule of 42 in investing?


The Rule of 42 is based on a substantial distribution of assets that guarantees a portfolio is well-rounded. This means having at least 42 assets but not owning a large amount of each. 

About author

I have always thought of myself as a writer, but I began my career as a data operator with a large fintech firm. This position proved invaluable for learning how banks and other financial institutions operate. Daily correspondence with banking experts gave me insight into the systems and policies that power the economy. When I got the chance to translate my experience into words, I gladly joined the smart, enthusiastic Fortunly team.

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