The good part: Midcareer accumulators would most probably have a decent amount of human capital, or earnings power. And with a runway of 15 or 20 years until retirement-and perhaps 25 or 30 more years in retirement-they can usually afford to take plenty of equity risk with their investment portfolios.
The challenge: Workers at this life stage may be at their peak earnings level, and therefore may have more-complex financial needs than their younger counterparts.
Moreover, midcareer investors frequently are juggling the competing financial demands of school and university for their kids and retirement savings for themselves. That's no small task, especially when you stop to consider the big price tags associated with each, as well as the complexities of calibrating two separate pots of money with two different time horizons. What should be the priorities?
Nurture human capital: Investing in human capital-via additional education or training-is close to a slam-dunk for early career accumulators. If you can increase your earnings power with such an investment, you have a long time until retirement to benefit from it.
The calculus isn't as simple as you get older, which helps explain why medical schools and high-priced MBA programs aren't jam-packed with people in their 40s and older. Higher lifetime earnings may not offset the outlay of money and time for costly training later in life.
Yet midcareer accumulators should still make an ongoing investment in their own human capital-taking advantage of continuing education programs and conferences to enhance their skills and networking. Simply staying current on the latest news and developments in their fields, both on and off the job, ensures you stay relevant.
Protect what you have: The more assets you amass, the more important it is to protect what you have. The same basic insurance types that were valuable in your 20s and 30s (health, disability, property) and life insurance, if you have dependents, remain essential as you head into your 40s and 50s.
In addition to reviewing your insurance needs, be sure to take stock of your emergency fund – target a year's worth of cash. That's because the higher your income and the more specialised your career path, the longer it could take to replace your job if you lost it. Also, people at this life stage may face serious life situations and in turn financial-setbacks: a health condition that limits work, for example, or time away from work to care for aging parents.
Combat lifestyle creep
These are the peak earning years. But with higher earnings, it's easy to let ‘lifestyle creep’ gobble up every bit of your extra income.
Before you know it, you're driving a luxury car with a high monthly payment and shelling out for dog walkers and house cleaners.
So how do you stop lifestyle creep? In short, the more you earn, the more you should save. Without increasing your savings rate, you may fall short in retirement because of your adjusted living expectations.
Begin to take some risk off the table
Portfolios for people in their 40s and 50s should still include plenty of higher-risk assets with higher return potential; after all, such individuals could be drawing on their portfolios for at least 40 or 50 more years, so they can't be content to hang out in low-risk assets with low returns to match.
That said, by the time you reach your 50s, it's a good idea to begin holding a bit more in lower-volatility investment types, especially high-quality debt paper or relevant debt funds. True, the return potential of bonds is apt to be lower than in the case for stocks. But bonds can serve as valuable shock absorbers for your portfolio, cushioning the losses when stocks go down.
That can help on a psychological level, of course, ensuring that you don't panic and sell yourself out of stocks when they're in a trough. Holding at least some assets in safer securities can also help serve as an insurance policy: If you are forced to retire early or find yourself out of a job prematurely, having a cushion of bonds can help you avoid tapping stocks for living expenses when they're in a trough.
Consider advice
As their assets grow, many investors assume that their portfolios should include more moving parts. But that's not necessarily so. A larger portfolio doesn't mean more complexity.
On the other hand, even as you may need to spread your assets across more and more silos as your wealth grows, that doesn't mean you need to maintain distinct and/or narrow holdings in each of these accounts.
Navigating the complexities of your financial journey, especially, as retirement approaches, can be daunting. Consider the value of expert guidance from professionals who specialise in areas like retirement planning, tax strategies, and estate planning.
Retirement after all, is the longest holiday of your life; make sure it’s pleasant and memorable!
(The writer, as Founder and Chief Financial Coach of PlantRich & Vama PlantRich, has coached 5000 plus corporate professionals in rewriting their money story)
