How to invest in your 40s
Many people enjoy a career-high in their 40s and may be looking for ways to put their hard-earned money to work. We reveal how to invest in your 40s.
It’s common for people to hit their stride professionally when they’re in their 40s. People in their 40s may also want to think about planning for significant life events, such as children’s education costs or retirement at 55 or 60
But juggling the costs of childcare, mortgage repayments, home renovations, and your pension contributions means that any extra cash needs to be handled with care.
Are you keen to start investing but wondering where to start? We’ll share some valuable tips to help you make sound investment decisions in your 40s that will successfully grow your money.
1. Identify your goals
Knowing what you want to achieve financially can help you decide how to invest any spare cash.
You might want to overpay on your mortgage, put aside some savings for your child or give your pension pot a boost.
Once you’ve identified your short and long-term financial goals, consider the following questions:
- Do you need easy access to your funds?
- How soon would you like to see a return on your investment?
- How much risk are you comfortable with?
If you’re happy to play the long game and expose yourself to some risk, you could consider investing in the stock market.
You could also consider a flexible ISA or a savings account if you’re looking to boost your savings, although the returns are likely to be lower than the stock market.
But first, it’s time to review your retirement pot.
2. Conduct a pension review
Is your pension in the best possible shape?
Before you consider investing in the stock market, make sure you’re happy with your pension pot.
Retirement might still seem like a long way off, but making regular pension contributions is one of the most efficient ways of maximising your money in the long term.
A healthy pension also gives you financial security and peace of mind in the future.
If you’re employed, you’ll likely already have a workplace pension (or more than one). Check to see if you can increase your contributions and whether your employer will match any increases.
If you’re self-employed, setting up a Self-Invested Personal Pension (SIPP) can help you take advantage of tax relief on your retirement savings.
You can also set up a SIPP alongside your workplace pension. A SIPP has all the tax relief benefits of a workplace pension and gives you control over how your pension is invested.
The money purchase annual allowance (MPAA) limits the amount you can contribute to your pensions if you've started accessing them. For 2024/25, the MPAA is £10,000. This is crucial for those who have already begun drawing from their pension and want to continue contributing.
There are annual contribution limits across all pensions combined (including SIPPs and workplace pensions). For the 2024/25 tax year, the annual allowance is £60,000, and exceeding this can lead to tax charges. Also, the Lifetime Allowance (LTA) was abolished in April 2024, but further changes could occur, so this should be kept in mind.
Find the best SIPP providers here.
3. Consider stocks and shares
Thinking about investing in stocks and shares?
Whether you’re new to investing or have been doing it for a while, diversification is the key to success by helping to minimise your exposure to risk and maximise your potential returns.
This means spreading your investments across different asset classes, such as stocks, bonds, property, and mutual funds.
You can also buy shares in different types of companies and various regions around the world.
That way, low-performing investments can be balanced out by ones that are doing well.
Alternatively, you could look at investing in a stocks and shares ISA to protect any gains and dividend income from HMRC, but ISA contributions are limited to £20,000 for each tax year.
Gains and income inside an ISA are tax-free but there are no further tax reliefs on ISA contributions, unlike pensions.
4. Consider investing in a fund
If you’re new to investing, you might prefer to buy a fund, which means a professional fund manager selects your investments for you.
You should review your portfolio regularly with a qualified financial adviser to make sure your investments are still meeting your goals.
5. Hedge funds
For high net worth (HNW) individuals, hedge funds can offer high financial returns, but they can be higher risk.
Hedge fund managers tend to use more aggressive investment strategies to get higher returns and may invest in non-traditional assets such as property and foreign currency.
To invest in a hedge fund, you need to be an accredited investor, so you need to have an annual income of at least £200,000 or a net worth of £1 million, excluding property.
If that’s the case for you and you’re prepared to adopt a high-risk strategy in the hope of high returns, a hedge fund is a viable option.
How to invest effectively
A successful investment strategy in your 40s will be determined by your unique circumstances and financial goals.
Your first step should be to pay off any debt and make sure you’ve got a financial buffer in place for emergencies. Having 3-6 months' worth of expenses saved is a common recommendation.
Low-interest debt might not need to be paid off immediately if inflation is higher than the interest rate, as the real cost of the debt will decrease over time
Next, look at your pension and make sure you’re happy with your contributions in order to achieve lasting financial security.
Inheritance Tax planning
People in their 40s may also start thinking about inheritance tax (IHT) planning.
Investments in certain assets like Alternative Investment Market (AIM) shares can be IHT-exempt after two years, which may benefit those with large estates.
Get expert financial advice
Investing in your 40s can carry a range of notable benefits, especially if you invest in a structured way. Many people in their 40s are at the peaks of their careers and earning potential, which means that they have extra cash available to invest in growing their pension funds, diversifying their investment portfolios, and investing in stocks, shares, funds, and even hedge funds to grow their cash.
Whenever you decide to invest, it’s worth getting advice from a financial adviser.
Unbiased can match you with an expert financial adviser near you who can help you develop a solid investment strategy that’s tailored to your unique circumstances.
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