How to invest in your 40s

By Sam Slator on 28 June 2023 in Multi-Asset

Your 40s can be a financially powerful decade. Many people are at the peak of their earnings power at this stage, having spent a couple of decades in their chosen careers. Their children may have already flown the nest – or be hurtling through their school years at a rapid rate – and mortgage repayments could be more bearable.

So, what could this mean for your investment story? Where should you be putting your focus during this stage of your life and what funds could be worth considering?

Your situation

The best-case scenario is you’re financially stable, with savings behind you and a decent salary that more than supports your lifestyle.

Of course, not everyone will be comfortable. For example, you may be struggling to financially rebuild your life after a punishing divorce. Similarly, you could have been made redundant and forced to use every available resource to stop you from going under.

First considerations

As always, your first priority must be clearing outstanding debts as the interest rates you’re likely to be paying will almost always outweigh what you can earn by investing. You also need to have some money in an easy access account – either a traditional bank savings account or cash individual savings account – in case of emergency.

Keep a close eye on your budget and future plans. If you have financial commitments coming up, such as a child heading off to university, consider putting money into an individual savings account.  These tax-efficient vehicles enable your money to grow free of income and capital gains tax.

Pension plans

You also need to be seriously considering the longer-term. How are you planning to fund your later life? Do you have set goals in mind? What you should do will depend on your situation.

Have you changed job in the past decade? Does this mean you now have a collection of pensions that you’ve picked up along the way? If so, your first job is to consolidate them.

You are also likely to be ‘peak’ career and ‘peak’ salary in this decade, so it’s definitely time to put as much into your pension as possible and really enjoy the tax breaks that offers you.

If you are a higher rate taxpayer, for example, you get an automatic 20% uplift on your pension contributions and 20% back from the tax man. That means £100 invested actually costs you just £60.

Investment suggestions

So, what investments should you consider? Asset allocation in your 40s is likely to be almost entirely in equities unless your tolerance for risk really doesn’t allow it.  At this stage, you’ll hopefully still have another quarter of a century before retirement, meaning your money has time to recover from stock market fluctuations.

That said, your chosen equities could also include less volatile areas, such as infrastructure equities, property equities, and maybe even some high yield bonds. There are plenty of attractive fund options in all these areas. Here we outline some of our favourites and what they may offer your portfolio.

M&G Global Listed Infrastructure

Every country has to regularly overhaul its infrastructure or risk being left behind by global competitors – and this presents opportunities for investors. Of course, this area isn’t just about multi million pound road and railway projects, which is a point illustrated by the M&G Global Listed Infrastructure fund.

This portfolio can invest in everything from utilities and toll roads to health buildings, mobile towers, data centres, and payment companies. Its manager, Alex Araujo, takes a concentrated approach to his role, meaning the fund usually has shares in less than 50 companies.  His stock selection process will cover the company’s dividend history and outlook, its capital discipline, and its sustainability credentials.

Cohen & Steers Global Real Estate Securities

This fund invests in a diversified portfolio of Real Estate Investment Trusts and other publicly traded real estate companies around the world. The team’s analysts examines stocks from both an equity and property perspective – as well as over various timeframes – which makes their approach pretty unique.

The investment process combines fundamental company analysis with a view of the wider economic environment. This enables the team to cut through all the market noise.

Overall, we see it as a useful fund for those wanting a safe pair of hands in an asset class that can add good diversification to a wider portfolio.

Baillie Gifford Strategic Bond

Every balanced, well-diversified portfolio should have at least some fixed income exposure and the Baillie Gifford Strategic Bond fund can fit the bill. The managers stick to what they do best, which is picking individual bonds. They don’t try to second guess central banks and interest rate movements. While this may seem simplistic, the in-depth research they carry out to find ideas is anything but.

The fund gives investors access to a concentrated portfolio of typically 60-80 primarily UK fixed income securities, from both the investment grade and high yield segments of the market. As co-manager Torcail Stewart says: “We back our best ideas, invest with conviction and stay focused. There is little room for passengers in this portfolio.”

*Source: fund factsheet, 31 May 2023

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