Are you a late financial bloomer? Did you tell yourself in your twenties “I’ve got years to get serious about my finances – ‘I’ll do that investing stuff later..”?
Well. Later has arrived.
If you’re a late financial bloomer, Emmet’s situation below might be very relatable. By knuckling down and focusing on investing you can overcome past savings shortcomings and a less than stellar financial track record to turn things around.
After years of financial missteps and a costly divorce, I’ve finally got my financial act together!
I’ve recently cleared all my consumer debts ( I just have the mortgage now) and have $8,000 saved to invest. I earn 80k a year and am 48 years old. My super is ticking along with the standard employer contributions.
I know I’m late to the investing party but better late than never, right? What should my next move be?
Ways for a late financial bloomer to invest
Emmett has wiped out all high-interest debt so that’s a green light for using the 8k to invest.
If you’ve still got credit card debt hanging around, I recommend paying it off first before getting started with investing.
So let’s look at some ways to get started…
Invest in high-quality dividend-paying stocks
Dividend stocks can be built up to create a reliable source of passive income over time.
What is a dividend stock? When a company makes a profit, it can either reinvest the profit back into the company or return a portion of the profits back to investors – this is called a dividend.
Dividends are usually paid by more established companies who have a low debt and high cash balance.
Investing in dividend stocks is a key part of Warren Buffett’s investing philosophy – it’s made his company billions. Now there’s a man worth listening too!
Get into the property market with a real estate investment trust (REIT)
Buying, selling and renovating properties isn’t the only way you can get a foot on the real estate ladder.
A real estate investment trust (REIT) is a company that owns, manages or funds income-producing real estate – usually commercial properties such as offices, hotels or shopping centres.
The rent generated from the properties in the portfolio is distributed to shareholders as regular dividends, making it an attractive investment option to generate a passive income stream. Usually, REITs pay out almost all of their taxable income as dividends to their shareholders.
The financial barrier for entry is much lower than the cost of buying an investment property directly, plus you skip the hassle of being a landlord.
Generally, the minimum investment is around $500 and you can get started by purchasing shares in a REIT mutual fund or REIT exchange-traded fund.
Hassle Free Index Trackers
If looking for specific stocks is a hassle you don’t want, or aren’t comfortable with, then index trackers are your friend.
An Index Tracker, or Exchange Traded Fund (ETF) is a stock that tracks a specific index. It could be the ASX200, the S&P500 or it could be a segment of the index, like manufacturing, property, information technology or any of the others. There are hundreds to choose from and they are a great way to get started…
And the really good part is they also pay dividends. Since they track an index the risk of total loss is a lot less likely and therefore your money is a lot more secure. Which if you are a late financial bloomer, that’s a good thing too.
The stock market doesn’t have to be scary
It’s true that with a shorter retirement time horizon, you can’t take on as much investment risk as you could in the decades before.
Your personal circumstances will directly affect your risk tolerance too. If you’re a late financial bloomer, your situation is probably in a fairly stable position – like Emmett – but you likely won’t have the financial cushion to be taking substantial risks.
That said, stocks should definitely still be part of your portfolio or you’ll wind up stunting your investment growth. There is no ‘magic’ asset allocation by age, or by asset class, but if you’re in your late 40’s, you are going to want some diversification to ensure you benefit from the gains in each of the asset classes.
The three main asset classes are stocks, property and cash based investments. Cash based investments include bonds and precious metals, that is gold and silver.
While you might be looking for a formula for how much to put in each asset class, the good news is, there isn’t one. I say good news because it means you have the flexibility to do what works for you and your circumstances.
Having said that, if you are going to get your late financial bloomer legs running, it will be necessary to get some money into the stock market. This will be particularly relevant if the deposit gap is going to prevent you from accessing direct property investments in the short term.
The deposit gap is the phenomenon occurring more and more these days. It’s where people are unable to save the amount needed for a deposit, which is preventing them buying properties.
By getting into the stock market and gaining some experience, you can avoid the scariness that people who don’t get involved will tell you about. It’s my experience that well meaning friends who don’t know anything about the stock market will be the loudest at telling you to avoid it.
Learn how to get started in the stock market, register for my FREE LIVE Masterclass that is happening this Wednesday (and two additional times after Wednesday) by clicking here. There is a FREE bonus just for registering and more bonuses on the LIVE call.
Pump up your employer-based retirement account
Emmet still has almost 2 decades to go until he reaches official retirement age. Even if you only get your financial act together in your late 40’s, making regular, additional contributions to your superannuation can make a big difference over the next few decades until you retire.
For my Australian readers; check out the MoneySmart website how you can make additional superannuation contributions to speed up the growth of your nest egg.
Bonus tips for a late financial bloomer
Take advantage of your earning capacity
Most of us are earning more in our 40’s than 20’s. While financial commitments are usually higher during our 40’s it’s a smart move to invest time (and money) into your professional development to maximise your earning potential. Put yourself in line for promotions or better paying job offers and invest your increased income, don’t spend it!
Add another income stream
Having multiple income streams is KEY to building future financial security; especially if you’re a late financial bloomer. Start a side hustle, drive Uber on the weekends or get paid for your talents and skills on a peer-to-peer service platform to bring in some extra cash for investing.
Try a robo-advisor
No one wants to pay crazy fees to have their money managed. Especially if you’re finally gaining traction in your finances.
A robo-advisor is a digital platform that provides automated, algorithm-driven financial planning. Reducing the need (and cost) to have a manager look after your portfolio for you.
A robo-advisor generally picks your investments and asset allocation. Depending on your situation, you can also make the decisions yourself.
We can’t change the past but we can start from where we are and hey, if you’ve got kids, pass the lessons you’ve learnt onto them. Give them a chance to make financial moves you wish you did decades ago.
Do you consider yourself a late financial bloomer? Let us know in the comments