• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

The College Investor

Student Loans, Investing, Building Wealth

  • About
  • Podcast
  • Research
  • Contact
  • Save For College
      • How To Start

      • How To Save For College
      • How To Pay For College
      • What Is the Average Cost of College?
      • What Is A 529 Plan and Where to Open One in Your State
      • How Much Should You Have In A 529 Plan By Age
      • How To Use A 529 Plan For Private Elementary And High School
      • What Are Qualified Expenses For A 529 Plan (And What Doesn’t Count)?
      • The Best Brokers To Open A 529 Plan
      • Tools + Accounts

      • 529 Plans: The Ultimate College Savings Plan
      • 529 Plan Contribution Limits
      • Prepaid Tuition Plans | What To Know
      • Understanding And Using 529A ABLE Accounts
      • Using A Roth IRA To Save And Pay For College
      • FAFSA Deadlines for Financial Aid
      • CollegeBacker Review
      • Upromise Review
      • UNest Review
      • Other Options

      • Student Loan And Financial Aid Programs By State
      • The Guide To Military And VA Education Benefits
      • How To Fill Out The FAFSA
      • How To Find College Scholarships
      • The Best College Scholarship Search Websites
      • How To Find Grants To Pay For College
      • Pell Grants: What They Are And How To Qualify
      • Understanding Federal Work-Study
      • How To Use A 529 Plan If Your Child Doesn’t Go To College
  • Student Loans
      • Borrowing

        • How Student Loans Work
        • How To Apply For A Student Loan
        • Best Student Loans And Rates In January 2023
        • 10 Best Private Student Loans Of January 2023
        • Best Student Loans To Pay For Graduate School
        • Best Student Loans To Pay For Medical School
        • Parent Loans To Pay For College
        • No-Cosigner Student Loan Options
        • Guide To Income Sharing Agreements (ISAs)
        • Best International Student Loans
      • Get Out Of Debt

        • Best Student Loan Refinance Companies In January 2023
        • Best Student Loan Repayment Plans
        • Best Student Loan Refinancing Bonuses And Promotional Offers Of January 2023
        • Student Loan Forgiveness Programs (The Complete List)
        • The Full List Of Student Loan Forgiveness Programs By State
        • Public Service Loan Forgiveness (PSLF)
        • Top Student Loan Scams
        • Average Student Loan Monthly Payment
        • Average Student Loan Debt By Year
      • Reviews

        • Credible Review
        • Splash Review
        • Ascent Review
        • Citizens Bank Review
        • Commonbond Review
        • Earnest Review
        • ELFI Review
        • Laurel Road Review
        • LendKey Review
        • SoFi Review
  • Investing
      • How To Start

        • How To Start Investing in High School
        • How To Start Investing In College
        • How To Start Investing In Your Twenties For 22 – 29 Year Olds
        • How To Start Investing In Your 30s For 30 – 39 Year Olds
        • How To Start Investing With $100 Or Less
        • How To Give Kids The Gift Of Stock
        • What Is Dividend Growth Investing
        • IRA Rollover Chart
      • Tools + Accounts

        • Best Online Stock Brokers
        • The Best Traditional And Roth IRA Accounts
        • The Best Robo-Advisors
        • The Best Investing Apps
        • The Best Places to Trade Options
        • The Best Places To Open A Health Savings Account
        • The Best Solo 401k Providers
        • The Best Self-Directed IRA Providers Of 2023
        • Best Cryptocurrency Exchanges
      • Reviews

        • Vanguard Review
        • Fidelity Review 2023
        • M1 Finance Review
        • TD Ameritrade Review 2023
        • Charles Schwab Review
        • Robinhood Review
        • Webull Review
        • Betterment Review 2023
        • Wealthfront Review
  • Earn More Money
      • Extra Income

        • 20 Best Side Hustles You Can Start Earning With In 2023
        • 53 Side Hustle Ideas To Make Money Fast
        • 100 Ways To Make Money In College
        • 80 Ways To Make Money From Home In 2023
        • 5 Quick Money Making Ideas (That Take Less Than 1 Hour)
        • 10 Interesting Ways You Can Make Money Driving
        • High-Paying Side Gigs That Earn $1,000 or More Per Month
        • The 10 Best Money-Making Apps
        • Paid Surveys: Earn Money For Giving Your Opinion Online
        • 10 Crazy Ways To Make $10,000 You’ve Never Heard Of
      • Build Wealth

        • 40 Passive Income Ideas You Can Use To Build Wealth In 2023
        • 3 Ways To Make $50,000 Per Year Without Working With Passive Income
        • How To Become A Real Estate Investor With Just $500
        • 15 Best Online Business Ideas
        • Residual Income: 7 Super Smart Ways to Build It
        • The Most Common Multiple Income Streams
        • How To Become A Real Estate Mogul With Only $10,000
      • Reviews

        • Fundrise Review
        • RealtyMogul Review
        • FarmTogether Review
        • AcreTrader Review
        • Swagbucks Review
        • Survey Junkie Review
        • TopCashback Review
        • DoorDash Review
  • Personal Finance
      • Banking

        • 10 Best High Yield Savings Accounts Of January 2023
        • 10 Best Money Market Accounts Of January 2023
        • 10 Best Free Checking Accounts In January 2023
        • Best Bank CD Rates Of January 2023
        • 10 Best Business Checking Accounts In January 2023
        • Best Online Banks Of January 2023
        • Best Credit Unions Nationwide Of January 2023
        • Best College Student Checking Accounts Of January 2023
      • Insurance

        • Best Life Insurance Companies
        • Renters Insurance
        • Car Insurance
        • Pet Insurance
        • Umbrella Insurance
        • Disability Insurance
        • Tuition Insurance
        • Travel Insurance
      • Credit Tools

        • Best Budgeting Apps
        • Cash Advance Apps
        • How To Get A Free Credit Score Report
        • Best Credit Monitoring Services For 2023
        • Debt Settlement: Inside The Secret World
        • Credit Repair Explained: Should You Pay For Help?
        • Best Personal Loan Companies And Lenders
        • Online Loan Companies To Borrow From Home
      • Tax

        • Best Tax Software
        • Free Tax Software
        • IRS Tax Refund Calendar
        • Common IRS Questions and Errors
        • Federal Tax Brackets
        • Capital Gains Tax Brackets
        • 401k Contribution Limits
        • IRA Contribution Limits
        • HSA Contribution Limits
  • Forum
  • Search
Home » Investing » The Best Investment Strategy By Age [Ultimate Guide]

The Best Investment Strategy By Age [Ultimate Guide]

Updated: November 10, 2022 By Robert Farrington

Tweet
Share44
Share
Pin37
Email
Print

At The College Investor, we want to help you navigate your finances. To do this, many or all of the products featured here may be from our partners. This doesn’t influence our evaluations or reviews. Our opinions are our own. Any investing information provided on this page is for educational purposes only. The College Investor does not offer investment advisor or brokerage services, nor does it recommend buying or selling particular stocks, securities, or other investments. Learn more here.Advertiser Disclosure

There are thousands of financial products and services out there, and we believe in helping you understand which is best for you, how it works, and will it actually help you achieve your financial goals. We're proud of our content and guidance, and the information we provide is objective, independent, and free.

But we do have to make money to pay our team and keep this website running! Our partners compensate us. TheCollegeInvestor.com has an advertising relationship with some or all of the offers included on this page, which may impact how, where, and in what order products and services may appear. The College Investor does not include all companies or offers available in the marketplace. And our partners can never pay us to guarantee favorable reviews (or even pay for a review of their product to begin with).

For more information and a complete list of our advertising partners, please check out our full Advertising Disclosure. TheCollegeInvestor.com strives to keep its information accurate and up to date. The information in our reviews could be different from what you find when visiting a financial institution, service provider or a specific product's website. All products and services are presented without warranty.

Investment Strategy by Age

There is no "one size fits all" when it comes to the best investment strategy. But it's one of the questions I receive almost everyday.

From what do I invest in, to how to get started investing, to picking individual stocks, everyone is looking for a magic investment strategy that will make them millionaires overnight.

The truth is that doesn't happen. You invest in stocks because over the long run, investing in the stock market has outperformed other investments. But that doesn't mean you should invest everything in stocks.

Here's how to craft the best investment strategy and why you should always think about your portfolio and all your money as a whole. While we call this the investment strategy by age guide - your age is really subject to your investment time horizon. Check it out below.

Table of Contents
Risk and Return by Asset Class
Reminder: Investing is Long Term
Do You Need A Financial Planner?
The Tools And Tactics Of Your Investment Strategy
Best Investment Strategy Long Term (20+ Years)
Best Investment Strategy Medium Term (5-19 Years)
Best Investment Strategy Short Term (Less Than 5 Years)
When To Not Invest
Final Thoughts

Risk and Return by Asset Class

The first thing to remember when it comes to investing is that risk and return are always correlated. What this means is, if you want to earn more (i.e. have a higher return), you're going to have to accept higher risk (i.e. you might lose money).

Also, past performance doesn't guarantee future returns. That means just because something returned X% in the past, doesn't mean it will do it again in the future. 

Here's a great example of average returns over the last 30 years:

average return by asset class infographic

As you can see, assets like stocks have a great average return versus cash. However, cash won't lose you money, where you could lose money in stocks in a one year period of time.

That's why, as you setup your investment strategy, you need to take your risk tolerance and time horizon into consideration. 

Reminder: Investing is Long Term

Investing is not gambling - and investing is long term. If you invest today, could you lose money? Yes. 100%. 

If you don't invest in a portfolio of diversified investments, do you increase your risk of losing money? Yes.

If you follow individuals who pick stocks and trade, do they win sometimes? Sure. But so do gamblers in Las Vegas.

If you go back to that table above, investing is long term because you want to take advantage of the long term behavior of an asset class - you're not betting on the individual behavior of one company. And to achieve that result, you need to stay in the market for a long period of time.

There is no way to predict what will happen tomorrow, next week, or next year. But over the long term (decades), we can extrapolate some historical data to build an estimate of what usually works.

That's why you consistently will hear me (and most other financial planners) say that you need to invest in index funds over the long term.

Do You Need A Financial Planner?

Maybe. When it comes to investing, it can be scary. And creating an investment strategy can be confusing. But many people won't need a financial planner to help them. There could be other financial professionals that make sense (read this: What Type Of Financial Professional Do You Need), but don't think it's mandatory to have a financial planner to start investing.

Where a financial planner can be helpful is in creating the plan, helping you navigate a life event financially (think marriage, baby, death of a parent), or if you really can't take the time or put in the effort and you need someone to kick you in the pants to make it happen. 

There are also great DIY Tools like New Retirement to help get you started and even connect you with a financial planner if it makes sense.

The Tools And Tactics Of Your Investment Strategy

When you're investing, you have a wide variety of tools and assets at your disposal. And to get started, let's look at tools first.

There are a few main tools for investing for the long term:

  • You and your earnings - this is your ability to generate cashflow over time
  • A business - this is a business you own that generates cashflow
  • Real Estate - this is property that generates cashflow and may appreciate
  • Stocks, bonds, and other paper assets - these are holdings of larger firms that may generate cashflow and may appreciate
Buckets Of Investing Infographic

Outside of these tools, there are also important considerations on "how to hold them" - effectively what account to put them in. These are the account types that can be taxable or tax deferred.

The main accounts are:

  • Taxable holdings
  • IRA
  • 401k
  • HSA

Knowing your tools and tactics can help you frame the understanding of how to structure your investment strategy.

Note: This article dismisses the idea of your own risk tolerance and asset allocation because it's seeking my definition of "best". If you're thinking of your own risk tolerance to build a proper asset allocation, hopefully my guide below will give you some ideas.

Best Investment Strategy Long Term (20+ Years)

This should be the goal for most investors under 50. A 20+ year investment time horizon. 

At the 20 year time horizon, your portfolio should be mostly assets that have growth potential, and may be riskier as a result. Equities and leveraged real estate are prime examples of assets you should focus on.

For a 20+ year portfolio, you should pick an investment allocation that is almost exclusively equities and real estate. Low cost index funds, maxing out retirement and tax deferred savings vehicles, and even consider business ownership. 

All of these investments are well suited to long term growth.

Check out this order of operations for funding your retirement for a good guide on how to leverage accounts properly.

Best Investment Strategy Medium Term (5-19 Years)

This is the time when you need to really start thinking strategically about the future. You're getting close enough to the end that you need to plan drawdowns, and you should also be shifting your assets to something that likely won't lose value.

One of the biggest risks in early retirement is massive decline. Think about retiring in 2006, and then having 60% of your portfolio value gone in 2008. That would be detrimental. 

Huge portfolio loss in retirement or approaching retirement means one of two things will happen: you will have to work and save longer, or you will have to live on less (potentially much less).

To avoid this as much as possible, as you approach the 5-10 year out mark, you should be moving into asset classes that historically don't lose as much in a downturn.

Go back to the chart above - this is why people start shifting to more and more bonds into their portfolio. They still have a slightly better return than cash, without as much risk as equities.

For other assets, like real estate, you should be moving from a leveraged real estate position to a de-leveraged one. This means paying off the debt so you can enjoy the cash flow.

If you have a business, you need to being exit planning if you're thinking about using the business to fund your retirement.

Best Investment Strategy Short Term (Less Than 5 Years)

When you're getting to the end, and you need a short term investment strategy, it's really time to think outside the investment box, and more into the capital preservation box.

Now, there's a difference between retirement and short term. Retirement, you have a mix - short term, and medium term. Just because you retire at 65 doesn't mean you're dead at 70. You need to have a mix of strategies for both short term and medium term, because it's very possible to live until 90 or beyond (my grandfather turned 97 this past weekend).

Short term investment strategies are inherently cash and bond heavy. The reason is simple: you don't want to lose.

If you honestly can't stand any loss, check out a money market account and park your cash and earn the best rate you can get. Bonds are a little more risky, with bond funds definitely susceptible to loss. 

If you have real estate, you should definitely be debt-free and cash flowing. You should also have your management in place, and thought about an exit strategy.

A business is very risky short term, and not recommended as a short term investment.

When To Not Invest

You should never invest money you can't afford to lose. For example, if you are saving for a house and plan to buy in the next 5 years, investing isn't the best approach. You could see your investment drop 50%, which sets you backwards in your goal of buying a house - when it would likely be a great time to buy a house.

A better approach for something like this would be a money market account.

Second, you should never, ever, invest in something you don't understand. Don't invest in something because "a friend said so". Don't invest if you don't understand the cost and fee structure. And never buy from an agent who won't tell you how much they are being paid to recommend this product and what possible alternatives may be.

Final Thoughts

Now that you have some ideas around investment strategy, you can create an investment plan for yourself. This means actually setting up an allocation and maybe even writing an investment plan out so you have it on paper. This will guide you as you make your decisions around what to invest in, and how to structure your holdings to achieve your financial goals.

Robert Farrington
Robert Farrington

Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.

He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.

He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.

The Best Investment Strategy By Age [Ultimate Guide]

Editor: Clint Proctor

Editorial Disclaimer: Opinions expressed here are author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, or other advertiser and have not been reviewed, approved or otherwise endorsed by any of these entities.
Comment Policy: We invite readers to respond with questions or comments. Comments may be held for moderation and are subject to approval. Comments are solely the opinions of their authors'. The responses in the comments below are not provided or commissioned by any advertiser. Responses have not been reviewed, approved or otherwise endorsed by any company. It is not anyone's responsibility to ensure all posts and/or questions are answered.
Subscribe
Connect with
I allow to create an account
When you login first time using a Social Login button, we collect your account public profile information shared by Social Login provider, based on your privacy settings. We also get your email address to automatically create an account for you in our website. Once your account is created, you'll be logged-in to this account.
DisagreeAgree
Notify of

I allow to create an account
When you login first time using a Social Login button, we collect your account public profile information shared by Social Login provider, based on your privacy settings. We also get your email address to automatically create an account for you in our website. Once your account is created, you'll be logged-in to this account.
DisagreeAgree

0 Comments
Inline Feedbacks
View all comments

Primary Sidebar

Investing Resources

Featured Broker Reviews

>  Vanguard (recommended)
>  Fidelity
>  Robinhood
>  TD Ameritrade
>  M1 Finance
>  Schwab

Featured Robo-Advisors

>  Wealthfront (recommended)
>  Betterment
>  WealthSimple
>  Vanguard Digital Advisor

Annual Contribution Limits

  • 401k Contribution And Income Limits
  • IRA Contribution and Income Limits
  • HSA Contribution and Income Limits
  • 529 Plan Contribution Limits

More On Investing

  • Best Online Stock Brokers In 2023
  • Best Brokerage and Investing Bonus Offers In January 2023
  • Best HSA (Health Savings Account) Providers Of 2023
  • 5 Best Investing Apps Of 2023
  • How To Buy Stocks Online For Free
  • The Best Robo-Advisors Of 2023
  • The Best Self-Directed IRA Providers Of 2023
  • The Best Traditional And Roth IRA Accounts Of 2023
  • Comparing The Most Popular Solo 401k Options
  • Top 3 Automatic Investment Apps Of 2023

Footer

Who We Are

The College Investor is an independent, advertising-supported financial media publisher, focusing on news, product reviews, and comparisons.

Connect

  • Contact Us
  • Advertise
  • Press & Media

About

  • About
  • Our Team
  • Podcast
  • Editorial Guidelines
  • How We Make Money
  • Archives

Social

Copyright © 2023 · The College Investor · Privacy Policy ·Terms of Service · DO NOT Sell My Personal Information

wpDiscuz