Investment Strategies for the 50s: How to Balance Your Portfolio for Optimum Growth and Security

In the realm of wealth management, the adage that ‘one size does not fit all’ is particularly applicable. The strategies that served you well in your 30s and 40s for how2invest might need significant adjustments as you enter your 50s. This is a pivotal decade in financial planning, where the focus shifts from aggressive wealth accumulation to a more balanced approach that prioritizes both growth and security.

Understanding the Investment Needs in Your 50s

As you approach your 50s, you are likely nearing the precipice of retirement. This imminent transition necessitates a financial reassessment, wherein you must balance the need for income generation with the preservation of capital. 

Risk tolerance often changes during this period as well. While the aggressive growth strategies of your earlier years may have involved higher-risk investments, your 50s call for a more conservative approach that protects your nest egg while still allowing for growth.

Balancing Income Generation and Capital Preservation

In your 50s, your investment strategy typically pivots from aggressive wealth accumulation to a focus on generating income for retirement and preserving the wealth you’ve already amassed. This can involve allocating a larger portion of your portfolio to investments that can provide regular income, such as dividend-paying stocks, bonds, and certain types of mutual funds or ETFs and tagteck.

Changing Risk Tolerance

The closer you get to retirement, the less time you have to recover from potential market downturns. As a result, many people in their 50s start to shift towards lower-risk investments. This doesn’t mean eliminating equities from your portfolio entirely, but it may mean focusing more on blue-chip and dividend-paying stocks, and less on high-risk growth stocks.

Strategic Diversification

Diversification remains a critical strategy in your 50s, as it can help to reduce risk and smooth out potential returns. This might involve diversifying across asset classes (stocks, bonds, real estate, etc.), as well as within asset classes (such as investing in a mix of different types of bonds or stocks from companies in various sectors and of different sizes).

Retirement Account Contributions

The 50s are a crucial time for maximizing contributions to retirement accounts. The IRS allows for “catch-up” contributions to 401(k) and IRA accounts for those over the age of 50, enabling you to contribute more than the standard annual limit. These additional contributions can significantly boost your retirement savings.

Estate Planning and Legacy Considerations

In addition to preparing for your own financial needs in retirement, you might also start to think more seriously about your financial legacy in your 50s. This could involve strategies for passing wealth on to your heirs, planning for potential estate taxes, and making sure your estate planning documents are up to date.

Healthcare and Long-Term Care Planning

Healthcare costs often become a more significant concern as you age. It’s important to consider these potential costs in your retirement planning. Additionally, it may be worth exploring insurance options for long-term care.

Inflation Considerations

Inflation can significantly erode purchasing power over time, particularly for those on a fixed income in retirement. Investments that offer some level of inflation protection, such as Treasury Inflation-Protected Securities (TIPS), can be a valuable component of a retirement portfolio.

As you navigate your investment needs in your 50s, it can be helpful to work with a financial advisor who can provide personalized advice based on your individual circumstances, risk tolerance, and retirement goals.

Key Investment Principles for Your 50s

In this stage of your financial journey, three investment principles are paramount: diversification, asset allocation, and dollar-cost averaging.

Diversification is the practice of spreading your investments across a variety of asset classes such as equities, bonds, real estate, and others. This strategy mitigates risk by reducing the impact of any single asset’s performance on your overall portfolio.

Asset allocation refers to the distribution of your investments among different asset classes. The right mix for you will depend on your risk tolerance, financial goals, and investment time frame.

Dollar-cost averaging involves regularly investing a fixed amount of money, which allows you to purchase more units when prices are low and fewer when prices are high. This strategy can temper the impact of market volatility on your portfolio.

Investment Options for Your 50s

Navigating investment options in your 50s involves a careful consideration of growth potential and security. Here, we’ll define some key investment options, along with tips for integrating them into a balanced and diversified portfolio.

Bonds and Fixed-Income Securities

Bonds and fixed-income securities are debt instruments issued by governments, municipalities, and corporations to raise capital. When you purchase a bond, you are essentially lending money to the issuer in exchange for periodic interest payments and the return of the principal amount at maturity. These investments can provide a steady income stream and are generally considered lower risk than equities.

Tip: Consider adding high-quality corporate and government bonds to your portfolio for their relative safety and steady income. Keep an eye on interest rates, as they can affect the price of bonds in the market.

Stocks

Stocks represent ownership shares in a company. Investors can profit from stocks in two primary ways: through the appreciation of the stock’s price and via dividends, which are portions of the company’s profits distributed to shareholders. Blue-chip and dividend-paying stocks are often the stalwarts of the market, known for their reliability and stable dividends.

Tip: In your 50s, it may be beneficial to focus on established companies with a consistent record of paying dividends. This can provide a source of income and potentially less volatile performance compared to growth-oriented stocks.

Mutual Funds and ETFs

Mutual funds and Exchange Traded Funds (ETFs) are investment vehicles that pool money from many investors to purchase a diversified portfolio of stocks, bonds, or other assets. Mutual funds are managed by professional portfolio managers, while ETFs typically track a specific index and can be traded like a stock.

Tip: Mutual funds and ETFs can provide instant diversification. Consider funds that align with your risk tolerance and investment goals. For instance, an index fund tracking the S&P 500 offers exposure to large U.S. companies, while a bond fund can add fixed income exposure to your portfolio.

Real Estate

Real estate investment can take many forms, from purchasing physical properties (like residential homes, commercial properties, or rental properties) to investing in Real Estate Investment Trusts (REITs), which allow investors to buy shares in commercial real estate portfolios.

Tip: Real estate can be a valuable part of a diversified portfolio, offering potential for both income and capital appreciation. Investing in REITs can provide exposure to real estate without the need to directly own and manage properties.

Annuities

Annuities are financial products sold by insurance companies designed to provide a steady income stream for a specified period or for life. They come in various forms, including immediate, deferred, fixed, and variable annuities, each with its own set of features, benefits, and costs.

Tip: Annuities can provide a guaranteed income stream, but come with certain considerations such as fees and the financial health of the insurer. If considering an annuity, make sure you understand the terms, costs, and potential penalties for early withdrawal. It may also be wise to check the credit rating of the insurer to assess their ability to fulfill their obligations.

Each of these investment options carries its own set of risks and rewards, and their appropriateness for your portfolio depends on your individual circumstances, risk tolerance, and investment goals. A financial advisor can help you understand these options and guide you in making informed investment decisions.

Retirement Accounts in Your 50s

Retirement accounts are a critical part of your investment strategy in your 50s.

Traditional and Roth IRAs

Traditional and Roth IRAs are tax-advantaged retirement accounts that can help you grow your retirement savings more efficiently. The key difference between the two lies in the timing of the tax advantage.

With a Traditional IRA, you can make contributions with pre-tax dollars, meaning that you get a tax deduction for the amount you contribute in the year that you make the contribution. The funds then grow tax-deferred, meaning you don’t pay taxes on the growth of the investment until you withdraw the money in retirement. At that point, your withdrawals are taxed as ordinary income.

On the other hand, Roth IRA contributions are made with after-tax dollars. You don’t get a tax deduction for the amount you contribute. However, the funds grow tax-free and, crucially, your withdrawals in retirement are also tax-free, provided you meet certain conditions. This can be a significant advantage if you expect to be in a higher tax bracket in retirement than you are currently.

The choice between a Traditional IRA and a Roth IRA will depend on your current income, your expected income in retirement, and your expectations about future tax rates.

401(k) Plans

A 401(k) plan is a type of retirement account offered by many employers. Like a Traditional IRA, contributions to a 401(k) are made with pre-tax dollars and grow tax-deferred. One of the main advantages of a 401(k) is the potential for employer matching. If your employer matches your contributions up to a certain percentage, this essentially represents free money that can significantly boost your retirement savings.

To maximize your 401(k) savings, aim to contribute at least enough to get the full employer match. 

To summrize, here are the contribution limits for 2023:

401(k): $20,500 standard contribution limit. An additional $6,500 for those 50 or older, as a catch-up contribution.

Traditional and Roth IRAs combined: $6,500 standard contribution limit. An additional $1,000 for those 50 or older, as a catch-up contribution.

HSA: $3,850 for self-only coverage and $7,750 for family coverage. An additional $1,000 for those 55 or older, as a catch-up contribution.

Assuming the person is under 50, and has self-only coverage for the HSA, the maximum total contributions for the year would be $20,500 (401k) + $6,500 (IRA) + $3,850 (HSA) = $30,850.

If the person is 50 or older, the maximum total contributions for the year would be $27,000 (401k with catch-up) + $7,500 (IRA with catch-up) + $4,850 (HSA with catch-up) = $39,350.

If the person is 50 or older and has family coverage for the HSA, the maximum total contributions for the year would be $27,000 (401k with catch-up) + $7,500 (IRA with catch-up) + $8,750 (HSA with family coverage and catch-up) = $43,250.

Individual retirement arrangements (IRAS). Internal Revenue Service. (2023, June 16). https://www.irs.gov/retirement-plans/individual-retirement-arrangements-iras 

These calculations are based on the assumption that the person is eligible to contribute the maximum amount to each of these accounts. Please note that there are income limits that may reduce the amount that can be contributed to a Roth IRA, and eligibility for an HSA requires enrollment in a high-deductible health plan.

Required Minimum Distributions (RMDs)

Once you reach the age of 72, you are required to start taking minimum distributions from your Traditional IRA and 401(k) accounts each year. These are known as Required Minimum Distributions (RMDs). The amount you must withdraw each year is based on your account balance at the end of the previous year and a distribution period from the IRS’s “Uniform Lifetime Table.”

If you fail to take your RMD, you could be subject to a tax penalty of 50% of the amount that you should have withdrawn. Therefore, understanding RMD rules and planning your withdrawals strategically can help you avoid potential tax penalties and manage your income in retirement.

Roth IRAs do not have RMDs during the owner’s lifetime, which is another advantage of this type of account.

To calculate the RMD, you divide the account balance as of December 31 of the previous year by the distribution period from the IRS’s Uniform Lifetime Table. For example, if you are 72 and your account balance is $500,000, the distribution period is 25.6 years. So, your RMD would be $500,000 / 25.6 = $19,531.25. This is the minimum amount you must withdraw for the year.

For Illustrative Purposes Only

Insurance and Emergency Funds

Financial security is paramount at every stage of life, but its importance becomes more pronounced as you move into your 50s and approach retirement. The value of having a financial safety net cannot be overstated. This can be achieved through maintaining an emergency fund and having adequate insurance coverage.

Emergency Fund

An emergency fund serves as a financial buffer against unexpected expenses or situations that might otherwise cause you to tap into your retirement savings prematurely. The general rule of thumb is to have an emergency fund that covers three to six months’ worth of living expenses, but some financial experts advise having even more as you approach retirement. This is because of the increased risk of medical expenses and the possibility of early retirement due to unforeseen circumstances.

Creating and maintaining an emergency fund requires disciplined saving and budgeting. It’s recommended to keep this fund in a liquid account, such as a high-yield savings account, for easy access in case of emergencies.

Insurance

Insurance plays a crucial role in protecting your financial security, especially as you get older and face higher health risks. Here are a few types of insurance you should consider:

Life Insurance – Life insurance can provide financial protection for your loved ones in the event of your death. This is particularly important if you have dependents who rely on your income. Consider your current financial obligations when deciding on the amount of coverage you need.

Long-Term Care Insurance – As we age, the likelihood of needing long-term care services increases. Such services can be quite expensive, and Medicare typically doesn’t cover them. Long-term care insurance can help cover the costs of nursing homes, assisted living facilities, or in-home care.

Health Insurance – Ensuring that you have comprehensive health insurance coverage is vital as health issues and associated costs tend to increase with age. Regular check-ups and preventative care can also help in mitigating health risks.

Disability Insurance – If you plan to work into your late 60s or beyond, disability insurance can provide income protection if you’re unable to work due to illness or injury.

Property Insurance – If you own a home or other valuable property, maintaining adequate property insurance is important to protect against potential losses due to events like fires, floods, or theft.

Working with a Financial Advisor

As you navigate the complexities of investing in your 50s, you may find significant value in consulting a financial advisor. Studies suggest that financial advisors can add significant value to a client’s portfolio, with estimates on the return on investment from having a financial advisor varying from about a 1.82% to a 3% net return per year, depending on a client’s circumstances and investments​​.

Financial advisors or private wealth management service providers can provide a comprehensive and holistic personal financial plan, regular check-ins on progress toward financial goals, and help in making smarter financial decisions. They can also assist in avoiding common investment mistakes such as attempting to time the market, lacking portfolio diversification, and not adequately addressing tax implications​​.

Moreover, they can provide valuable guidance on asset allocation, ensuring you are not overinvested or underinvested in certain asset classes like stocks, bonds, and cash​​. Tax planning, retirement planning, and legacy planning are some of the most sought-after services offered by financial advisors​.

However, it’s important to understand the cost structure of financial advisors. Most firms charge fees based on a percentage of assets under management (AUM). The average fee for these firms is about 1% of AUM​​. As you consider working with a financial advisor, make sure you understand these costs and feel that the value provided is worth the investment.

Conclusion

Investing in your 50s is a crucial part of preparing for retirement and requires a careful balance of growth and security. By diversifying your investments, strategically allocating your assets, and potentially working with a financial advisor, you can work towards your financial goals while protecting your hard-earned savings. Remember, it’s not just about preparing for the next decade, but setting the stage for a secure and comfortable retirement in the years to come.

This article serves as a guide, but personal circumstances may vary greatly. Therefore, consider seeking professional financial advice that is tailored to your personal needs and objectives.

Michael Landsberg, CIMA®, CFP®, AIF®, serves as the Chief Investment Officer of Landsberg Bennett Private Wealth Management, a Florida-based boutique private wealth management company. With a B.S. from Babson College and an M.B.A. from the University of Florida, he began his career at Morgan Stanley before managing investments in Florida. He believes in disciplined, rules-based investment strategies, and strives to provide exceptional service to clients. 

Landsberg Bennett Private Wealth Management is a group comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Some investment professionals may also be registered with Hightower Securities, LLC, member FINRA and SIPC. Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC. All information referenced herein is from sources believed to be reliable. Landsberg Bennett Private Wealth Management and Hightower Advisors, LLC have not independently verified the accuracy of completeness of the information contained in this document. [Advisor Practice] and Hightower Advisors, LLC or any of its affiliates make no representations or warranties, express or implied, as to the accuracy or completeness of the information or for statements or errors or omissions, or results obtained from the use of this information. Landsberg Bennett Private Wealth Management and Hightower Advisors, LLC or any of its affiliates assume no liability for any action made or taken in reliance on or relating in any way to the information. This document and the materials contained herein were created for informational purposes only; the opinions expressed are solely those of the author(s), and do not represent those of Hightower Advisors, LLC or any of its affiliates. Landsberg Bennett Private Wealth Management and Hightower Advisors, LLC or any of its affiliates do not provide tax or legal advice. This material was not intended or written to be used or presented to any entity as tax or legal advice. Clients are urged to consult their tax and/or legal advisor for related
questions.

Hightower Advisors, LLC is an SEC registered investment adviser. Securities are offered through Hightower Securities, LLC member FINRA and SIPC. Hightower Advisors, LLC or any of its affiliates do not provide tax or legal advice. This material is not intended or written to provide and should not be relied upon or used as a substitute for tax or legal advice. Information contained herein does not consider an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to
change. Clients are urged to consult their tax or legal advisor for related questions.