Are you interested in stock market gains? Here’s the average stock portfolio for people in their 40s

Everyone wants the value of their money to grow as much as possible, but our ideas about how to do that can vary greatly.

The risks are generally greater when we reach our 40s. At this age, the average person has reached or is near their peak income, and is close enough to retirement that it is no longer an abstract matter. How does the average American in their 40s invest for their future? According to Empower, this is mainly done through stocks and alternative investments.

Typical portfolios for people in their 40s

This fall, Empower collected user data to determine how people invest by age group. Portfolio mix reflects the average split for those in their 40s:

How much should someone in their 40s invest?

Experts often use multiples of annual income as a guide to staying on track for retirement. The standard advice offered by companies like Fidelity, Equifax, and T. Rowe Price is that by your mid-40s, you should have three times your current income set aside when you stop working.

This means that if you earn $70,000, you should already have $210,000 set aside. Conversely, if you earn $100,000 or $40,000, you should have $300,000 or $120,000 respectively.

Of course, this is just a rough guide – not a one-size-fits-all rule. Your actual needs depend on your income, expenses, etc.

How should you divide your portfolio?

Ask most financial experts what an investment portfolio should look like in your 40s, and they’ll likely say that between 70% and 80% of your investments should be in stocks, with most of the rest in bonds.

The reason why young people are advised to invest more in stocks is their high potential for growth. Without accounting for inflation, the Standard & Poor’s 500 index has achieved an average annual return of more than 10% since 1957, while US bonds, from 1926 to 2023, have achieved an average annual return of 5%.

If stocks can help our money grow more quickly, why are we told to gradually increase our holdings of bonds as we age? The main reason is that bonds are less vulnerable to large sell-offs that may take some time to recover from.

Experts generally agree that the last thing you want is to retire in the middle of a bear market and have no choice but to pull your money out of stocks that are currently trading at market lows.

Improve returns without taking excessive risk

There are ways to improve your returns without adding high-risk assets to your portfolio. Empower recommends spreading risk by investing in a balanced mix of stocks, bonds, cash and alternative investments, such as REITs and commodities. He also advises regularly monitoring your portfolios, rebalancing them when they stray from the desired mix, and resisting the urge to time the market.

At the same time, T. Rowe Price suggests that people in their 40s contribute as much as they can to retirement accounts, supplement savings with an account where taxes are paid in advance, such as a Roth IRA, and put a significant portion of their investment portfolio in stocks, since there are still several decades left until retirement.