Top 7 Things You Have to Know About Investing in Your 40s

By Chika


Last Updated: October 28, 2021


Making room for all of your financial goals will always be a challenge.

But in your 40s, it can feel like you are far behind in your financial goals. Advancements in medical sciences, plus increased consciousness in health habits have increased the longevity of Americans.

With the average lifespan of Americans hitting almost 80 years, this means you have roughly another 40 years to make your finances right. That's plenty of time to cover lost ground. Here are some ways to invest in your 40s.


7 Ways You Should Be Investing When in Your 40s

1. Check your spending

At 40, a reminder to save and invest for the future should be at the top of your mind. One of the areas to build resources to save and invest is by cutting spending. There are luxuries we can forego which would save us money which we can then invest.

No amount is too small, as little figures add up to larger amounts. 

For example, if you are subscribed to 3 or 4 streaming services, you may well trim that number to 1 or 2 streaming platforms. Reward yourself when you save money by investing.

For example, you could invest every dollar saved in an index fund or towards your kid's college tuition each time you skip going to a movie or eating at your favorite restaurant. 

2. Accelerate the pace of investment

At 40, you should be prepared to commit a huge proportion of your income to investments.

This should be a minimum of 30 - 40% of total income. You have about two decades left in the labor market to save for your retirement. So at this stage, every penny counts. You can set up automatic savings from your regular account to your investment account. 

3. Invest in dividend stocks

One key strategy when investing in your 40s is looking beyond your retirement. You need a source of income to provide steady cash flow when you are no longer working. Dividend stocks can provide a good source of cash flow.

The dividends, when compounded, can increase your portfolio size, plus your principal also appreciates when the share price of the stock rises. You can look out for high-yield stocks.

4. Make plans for your retirement account

Because you have a lot of ground to cover in your 40s, there is a tendency for aggressive investment. However, this should not be done to the detriment of your retirement account contributions.

One effective way is operating a Roth 401(k) or traditional IRA alongside your employer contributions into your 401(k). This amount would supplement whatever income you generate from other investments.

When withdrawn at retirement, you are exempted from federal income tax. You can also optimize your retirement savings by investing your contributions into equities, ETFs, or Mutual Funds if your account provider permits such. 

5. Reduce debt at any opportunity

Debt and interest payments eat away at your income, leaving you with less money to invest and hit your financial goals. As such, you have to make a commitment to reducing your debt.

A commitment to avoid taking on new debt is a good step in the right direction. You can decide to stay away from credit cards, BNPL offers, etc.

Also, make regular contributions to pay off your existing debt, and always use the opportunity to contribute an extra amount. The only time you should be taking on new debt is for investment purposes. 

6. Create multiple income streams

Two ways of increasing your earnings are either by receiving a promotion at work or creating multiple streams of income. Since the former is beyond your control, you should consider taking the latter.

Creating income streams to supplement what comes from your day job, not only gives you extra savings to invest but also sets you up for life after retirement. Your side hustle could turn to a full-time occupation, meaning you would still be productive and generate income even in retirement.

Plus, you are working for yourself and can determine your pace. If you have digital skills, you can try out freelancing or part-time remote work. If you are crafty, you can consider selling items online. 

7. Tap into your home equity

If you own a home, then you could be sitting on a pile of cash that needs to be used.

Accessing your home-equity loan is a good way to cover ground in your 40s. However, a caveat must be added here: If this loan is misused, you could lose your house. As such, you should only tap into your home equity loan if you want to invest and create more income streams.

Starting a new business is a very good way of using your home equity loan. You can also decide to sell off your house. But this is only advisable if you want to buy a cheaper house and use the proceeds to create more income streams.

Read this next: 7 Important Investment Tips to Consider if You're in Your 20s

Photo by Sora Shimazaki from Pexels


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