Roadmap To Investing: For 50-60 Year Olds

Roadmap To Investing: For 50-60 Year Olds

Written by:  Helen Yau | Advisory Team

 

For those already in their 50s and 60s, financial priorities often begin to shift.

With retirement on the horizon, this stage of life is commonly marked by a mix of excitement and urgency.  Many in this age group are balancing multiple financial responsibilities, such as paying down a mortgage, possibly supporting adult children, or catching up on retirement savings after years of prioritising family and career expenses.  With fewer years left in the workforce, investing becomes a crucial strategy for building a robust retirement nest egg and ensuring long-term financial security.

Why Consider Investing In Your 50s + 60s?

If you’re approaching retirement and haven’t yet started investing, you may wonder why it’s worth starting now?

Here are some key reasons:

1. Boost Retirement Savings:  If your superannuation balance or other retirement savings are lower than you’d like, investing can help grow your funds, giving you a larger financial cushion in retirement.
2. Catch-Up Opportunities:  In your 50s and 60s, you’re often in a strong earning period, and you may have fewer financial commitments, allowing you to allocate more towards investments.  Additionally, those over 50 have the option to make higher concessional (pre-tax) contributions to superannuation, which can aid in building wealth more effectively.
3. Beat Inflation:  Inflation erodes purchasing power over time.  By investing, you’re giving your money a chance to grow and stay ahead of inflation, protecting your purchasing power in retirement.

Why Consider A Self-Managed Super Fund (SMSF)?

Self-Managed Super Funds (SMSFs) are increasingly popular for their flexibility and control over superannuation investments.

Have you been thinking about a Self-Managed Super Fund for a while but are still not sure if it’s the right time?  Check out this previous blog we put together: When Is It Time To Consider A Self-Managed Super Fund?

Here’s why SMSFs can be an appealing choice for investors in their 50s and 60s:

What Is An SMSF?

An SMSF is a private superannuation fund that you manage yourself, allowing you complete control over how your retirement savings are invested.

This level of control enables you to choose from a broad range of investments, including shares, property, managed funds, and even alternative assets such as cryptocurrency or precious metals like gold and silver bars.  However, running an SMSF also means taking on the responsibility of compliance, administrative duties, and adhering to tax and superannuation laws, so it’s best suited for those who are confident in managing their finances or have support from a financial advisor.

What Can You Invest In With An SMSF?

With an SMSF, you have a diverse array of investment options.  Here are some common ones:

• Australian and International Shares:  Shares are popular choice as they offer growth potential and dividends.  Australian shares often appeal to SMSFs for their ability to generate income through dividends.
• Property: SMSFs allow direct investment in residential or commercial property.  Rental income from property investments can generate cash flow for the SMSF, though borrowing restrictions apply.
• ETFs and Managed Funds:  Exchange-Traded Funds (ETFs) and managed funds offer diversification across different sectors and regions, providing a relatively straightforward way to spread risk.
• Fixed Interest and Cash Investments:  These can include terms deposits or bonds, higher-risk options due to price volatility.  Strict documentation and adherence to SMSF rules are essential for compliance in this area.
• Gold and Silver Bars:  Physical gold and silver are seen as stores of value and can be held by SMSFs, though they must be securely stored and insured.  Precious metals can act as a hedge against inflation or market downturns.

These investment options allow SMSFs to craft highly personalised portfolios that align with their retirement goals, risk tolerance, and investment time horizon.

Interested in knowing more about the rules around investing with a Self-Managed Super Fund?  Check out this previous blog we put together: Investing With Your SMSF: What Are The Rules?

Investment Management: Investments To Consider If You’re Just Starting In Your 50s or 60s

If you’re starting your investment journey in your 50s or 60s, consider a diversified mix that balances growth with capital preservation.

Here are some suitable starting points:

1. Superannuation Contributions:  Making the most of superannuation remains a tax-effective way to build retirement savings.  You can contribute pre-tax income (concessional contributions) and even after-tax income (non-concessional contributions), both of which benefit from tax advantages that can enhance your overall retirement balance.
2. Dividend Stocks:  Dividend-paying stocks from stable companies can provide income while still offering growth potential.  Look for companies with a track record of consistent dividends, as these can provide cash flow and compound over time, helping your investment grow.
3. Exchange-Traded Funds (ETFs):  ETFs are a popular option for building a diversified portfolio without selecting individual stocks.  Broad market ETFs offer exposure to a wide range of companies and sectors, lowering risk and simplifying portfolio management.
4. Bonds and Fixed Interest Investments:  Bonds, such as corporate or government bonds, are typically less volatile than stocks and can generate regular income.  Bonds provide stability and are appealing for those close to retirement who seek a predictable income stream.
5. Property Investment:  Property is a strong income-generating asset but does require substantial management.  Rental income can support cash flow, and property values tend to appreciate over time.  However, property is illiquid and requires ongoing maintenance and management.

Financial Goals + Potential Risks To Be Aware Of

Every investment carries some degree of risk, and as you approach retirement, it’s crucial to understand these risks and manage them according to your financial goals.

Here are a few things to keep in mind:

• Market Volatility: Market volatility can significantly impact your portfolio, especially if you have a large allocation in socks.  While stocks offer high returns, they can also experience rapid declines, which might affect your retirement timeline if you’re close to retirement;
• Inflation Risk: Inflation can erode your purchasing power over time, especially if you hold cash or fixed-interest assets.  Investments like property, shares, or inflation-linked bonds can help offset inflation risks over time;
• Liquidity Risk: Certain assets, like property or precious metals, can be difficult to sell quickly without incurring losses.  Having a portion of your portfolio in liquid assets, such as stocks or ETFs, ensures you have access to funds if needed; and
• Longevity Risk: With Australians living longer, there’s a risk of outliving your savings.  By focusing on investments with growth potential or income-generating capabilities, you can help ensure your funds last longer.

Understanding Your Risk Profile

Your risk profile, or tolerance for risk, is vital to shaping your investment strategy, especially at this stage of life.  Here’s a look at common risk profiles for investors in their 50s and 60s:

• Conservative:  Prioritises stability and capital preservation over high returns.  This profile would favour a mix of bonds, term deposits, dividend stocks, and possibly a small amount of property.
• Balanced:  A mix of growth and stability, with a preference for both income and potential for capital gains.  A balanced portfolio would include shares, property, and bonds.
• Growth:  For those willing to take on higher risk in pursuit of higher returns.  This profile typically favours shares, ETFs, and possibly alternative investments like cryptocurrency or precious metals.

Want to know more about how we help you find out your risk profile?  Check out this previous blog we put together: Risk Profile: What You Need To Know Before Investing

The Importance Of Financial Advice

Investing in your 50s and 60s involves unique challenges and decisions, and professional financial advice can be invaluable to enhancing your financial future.

A financial adviser can also help monitor and adapt your plan as retirement approaches, ensuring you have the right mix of investments to support your desired lifestyle.  With personalised guidance, you can make more informed decisions and, create a secure roadmap toward a comfortable retirement and achieve peace of mind for the years ahead.

Want to know when you should be looking at getting a financial adviser? Check out this previous blog we put together: When Should You Get A Financial Adviser?

Canny Advisory + Investing With A Financial Advice

Our team of financial advisers at Canny Advisory can help tailor a strategy that aligns with your retirement goals, risk tolerance, and time horizon.

They can also ensure compliance with SMSF regulations, optimise tax benefits, and provide insights into adjusting your portfolio to match changing market conditions!

Get in touch with our team to have a chat about how we can start your investment journey today.