Better late than never: How to start investing in your 40s and beyond
Automating contributions is one way to stay consistently invested, say experts
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[SINGAPORE] It is widely accepted that starting to invest early gives money more time to compound and build wealth. Yet many people reach their 40s without ever making their first investment.
Kenneth Goh, director of private wealth management at UOB Kay Hian, said people in their 30s and 40s are often consumed by “immediate demands” such as raising children, supporting ageing parents, servicing a mortgage and advancing their careers.
“These are not excuses. They are legitimate competing priorities that consume both money and mental bandwidth,” he said.
Then, there are others who are unsure how to navigate financial markets.
Over time, this creates greater inertia to begin investing, said Jamie Lee, head of digiWealth at DBS Bank. The fear of losing money can then get bigger as time passes.
However, financial experts stress that it is never too late to start.
Is it too late to start after 40?
As Singaporeans live longer, retirement can easily span two or three decades.
This means that someone who starts investing at 40 and plans to retire at 65 still has about 25 years for their investments to grow, said Lee.
For instance, investing S$1,000 a month at an annual return of 4 per cent, with returns reinvested, could grow into a portfolio worth more than S$510,000 over 25 years.
The principle holds for smaller amounts too, said Goh. Investing S$100 a month over 20 years could potentially grow to between S$41,000 and S$59,000, assuming annual returns of between 5 and 8 per cent.
“The mathematics are more encouraging than most people realise,” Goh added.
Those who have already retired and are in their 60s should still prioritise investing, said Joseph Zhang, Fidelity International’s head of retirement investing and portfolio manager.
Many retirees could still have decades ahead of them, making inflation the “biggest enemy” to their financial security, he added.
While retirees generally cannot afford to take as much investment risk because they no longer have a regular income, keeping their savings in cash could steadily erode their purchasing power.
Instead, retirement planning should combine investments with insurance solutions to balance growth and protection.
Taking the first step
For late starters, the first step is education.
National financial education programme MoneySense provides accessible resources for beginners, while reading widely or observing others can help investors understand the basics of markets, risk and diversification, said Goh.
This group of investors should also be clear about their financial goals, said Lee. Apart from retirement, those in their 40s or older may want to save for shorter-term goals such as travel.
Understanding these goals will help them determine how much risk they can take and how long they can remain invested, she added.
At the same time, experts advise building an emergency fund that can cover three to six months of expenses before investing heavily.
High-interest consumer debt, such as outstanding credit card balances, should also be reduced, said Goh.
He pointed out that investment gains can easily be eroded if borrowers continue paying double-digit interest on consumer debt.
“So (one’s) lifestyle needs to be managed too,” he said.
Building a portfolio
Experts urged investors to start with any amount they are comfortable with.
“The amount matters less than the act of starting,” Goh said.
To stay disciplined, Lee recommends automating investments through regular monthly contributions.
For example, DBS’ digiWealth financial planning platform, available through the bank’s mobile app, allows users to set up automated investments and easily adjust their monthly contributions.
For those nearing retirement, Lee also recommends portfolios with glide paths. Glide paths are portfolios that automatically reduce exposure to riskier assets such as equities and increase allocations to bonds as investors grow older.
The DBS Retirement digiPortfolio, also available through the bank’s app, relies on glide path to automate asset allocation and drawdowns based on one’s retirement needs.
DBS expects its glidepath solutions to generate around 5 to 6 per cent annualised returns over the long term.
Even those who begin investing later in life can “jump into the glide path halfway through”, said Zhang.
He said that Fidelity’s own portfolios are designed to recommend an appropriate level of investment risk based on where an individual is in their retirement journey.
The Central Provident Fund itself will roll out life-cycle funds around 2028 with a glide path mechanism to adjust asset allocation according to members’ retirement horizon.
How much should you invest?
Experts generally recommend allocating between 10 and 20 per cent of one’s income to investments.
But Goh acknowledged that many people in their 40s are part of the “sandwich generation”, supporting both children and ageing parents, and suggests they start with a “manageable” amount.
Lee recommends investing based on three principles: compounding, diversification and consistency.
Diversification remains particularly important for investors starting later in life. Spreading investments across different asset classes, sectors and geographies helps smooth returns because different assets perform differently throughout economic cycles.
Lee said investors can build a “core” portfolio by investing regularly over time. Such a portfolio could target annual returns of around 4 per cent, based on the typical performance of a balanced portfolio comprising 60 per cent equities and 40 per cent bonds.
Once investors have set up a core portfolio, they can consider investing in other sectors or assets, depending on their risk appetite, said Lee.
Goh said beginner investors can use broad market indices such as the Straits Times Index or the S&P 500 as benchmarks to gauge how their portfolios are performing.
Ultimately, the experts stress it is not too late for anyone to start investing.
Said Goh: “Starting at 40 with consistency still puts you well ahead of starting at 60 with regret.”
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