How to invest in your 50s
Once you hit your 50s, you’re getting much closer to retirement. You might even see some of your friends retire early (if they invested young).
But now you’re getting closer to the point where you leave the office for good. So, your runway becomes a little shorter.
That’s the point where you want to think very carefully about your investment time horizon.
For instance, let’s say:
- You are 63
- You’ve got $100k in KiwiSaver, and
- Want to start spending it when you are 65.
So you have a 2-year time horizon.
It’s probably not a good idea to have that money invested in a high-risk growth fund. The value of your investment could easily go down over the next 2 years.
Usually, investors who put money in growth funds have a 7-10+ year time horizon.
This is why, as people get closer to retirement, they often think: “Does that mean I should switch my investments to lower-risk assets?”
The answer is often ‘yes’ and ‘no’.
In the above example, you’re 63 and want to retire at 65 and access your KiwiSaver. You want to pull it all out very soon, so you opt for a lower-risk investment.
But what if you:
- Have a bigger KiwiSaver that could last you for the first 7 years of retirement. And
- Have an investment property with $300,000 of equity in it?
In that case, your investment time horizon for some of your KiwiSaver is 2 years. But your investment time horizon on your investment property is 9 years.
Because you won’t sell it until you’ve spent most of your KiwiSaver.
So, even as you retire, it can be appropriate to have investments that have different risks.
You might have some:
- Lower risk investments (if you need the money soon)
- Higher risk investments (if you won’t need the money for 7+ years).
This is why I sometimes meet investors who still buy property in their mid-50s. They don’t plan on selling it until they are 70+.
Having said that, because you’re getting close to stopping work, it is often time to invest a little lower risk
If you’re buying a property, you might not take on as much debt. And you’ll probably continue to diversify your investments.
The way you invest might change, too.
I once met a 57-year-old high-income earner. She wanted to retire at 67. So she had a 10-year time horizon. And she wanted to invest in property.
But, property prices can go up and down a lot in the short term. So rather than banking on capital growth, she bought 2 high-yield properties.
She then aggressively paid down the mortgages with her salary. By 67, those properties will likely be mortgage-free. She then plans to spend the rental income to supplement her NZ Super.
