The earlier in life you’re able to start investing, the more wealth you have the potential to accumulate. So if you’re able to begin investing in your 20s, you can take advantage of compounded returns in your brokerage account or IRA and grow yourself a nice balance.
But what if you’re only able to first start investing in your 50s? It can happen for a lot of reasons.
If you graduate college with a lot of debt, paying it off might take priority in your 20s, as might building an emergency fund for near-term expenses that are unexpected. And in your 30s and 40s, you might be saddled with housing expenses and child care costs, from daycare centers when your kids are young to ongoing summer camp tuition.
So if you’ve reached your 50s and are only now starting to invest, don’t beat yourself up. But also, make sure to approach the process strategically.
Stocks have the potential to generate strong returns, but they can be very volatile. When you’re close to retirement age, it can be dangerous to have too much of your portfolio in stocks.
But the good thing about being in your 50s is that you’re not necessarily on the cusp of retirement. You might conceivably be anywhere from 10 to almost 20 years away, depending on your specific age and retirement plans. So if you’re first building up a portfolio, it’s a good idea to put the bulk of your assets into stocks — either a mix of companies across different industries or different exchange-traded funds (ETFs) for diversification.
If you’re going the individual stock route, you’ll want to aim for around two dozen stocks or more. But don’t go overboard, either. You need to be able to track your stocks, so buying 82 of them may not serve you so well.
How far can you get if you start investing in your 50s?
It’s impossible to pin down a specific return for a stock portfolio that’s put in place in someone’s 50s because there are many variables involved. But over the past 50 years, the stock market has delivered an average annual return of 10%, as measured by the performance of the S&P 500 index.
So let’s say you begin investing $500 a month at age 51 and want to retire at age 69. That gives you 18 years. Let’s also assume you go heavy on stocks during that time and only start shifting more heavily toward bonds a few years before retirement.
In that case, it’s reasonable to assume that your portfolio might generate an average annual return of 8%. And that would leave you with a balance of about $225,000.
For context, the average 60-something has a retirement plan balance of $112,500, according to Northwestern Mutual. So with $225,000, you’d be looking at twice the balance the typical near-retiree has.
It’s ideal to start investing well before your 50s. But if that didn’t happen, don’t dwell on it. Instead, start putting your money to work as soon as possible so you can still retire with a nice chunk of cash.