The best places to invest your money at every age: Finance experts issue decade-by-decade advice
When picking everything from a haircut to a hemline, your choice will often be influenced by what is considered 'age appropriate' – and the investments you hold in your stocks and shares Isa are just the same.
Some investments may be a perfect fit when you're in your 20s and 30s, but by the time you are in your 60s and 70s you've outgrown them. Others are ideal for an older investor, but would not suit one starting out.
That's why it's essential to check in on your portfolio every few months – to make sure that you're getting the returns you'd hoped for, and that your holdings are still right for your age.
Although the composition of your portfolio should change over time, the benefit of an Isa will not. They allow you to build a nest egg to pay for your goals, from buying your first home to retirement.
Some investments may be a perfect fit when you're in your 20s and 30s, but by the time you are in your 60s and 70s you've outgrown them
The advantage of investing in a stocks and shares Isa is all returns are tax free. Plus you can put up to your full Isa allowance of £20,000 into one each tax year – this year's deadline is less than a fortnight away, so get a wiggle on.
18-29
At this age you're likely new to investing. Of course, you may have held a Junior Isa (Jisa), which can be opened for a child by their parent or guardian. However, you only take over the ownership of a Jisa at 18.
As you are getting started, you may want to keep things simple.
We asked investment platform AJ Bell to reveal the top five investments among its customers at each decade (see table, right). Clearly, those aged 18-29 are successfully adopting this keep-it-simple approach.
The most popular holding is Fidelity Index World, which gives you a sliver of thousands of top companies from 23 developed countries – perfect to ensure all of your eggs are not in one basket.
It is also dirt cheap with an annual charge of just 0.12 per cent. The HSBC Tracker FTSE All World is similar, except it invests in developing as well as developed markets. It costs 0.13 per cent.
Time is on your side. In general, the longer you have to invest the better, as you have time to ride out fluctuations in the stock market and benefit from your returns compounding year after year.
Let's say, for example, you put £1,000 into a stocks and shares Isa at 18 and leave it untouched until the state pension age of 68. If you earned an average annual return of 6 per cent after fees, you'd be sitting on £18,420 – even if you didn't contribute another penny.
If you won't need your money for some time, you could consider higher-risk funds. Scottish Mortgage Trust, the second most popular investment for this age group, fits this definition as it seeks out companies ripe for strong growth.
If you plan to cash in soon, for example to buy a home or go travelling, you may want to take on less risk so you don't suffer a big dip in the value of your savings right before you need them.
30-39
Your income is hopefully creeping up, but it's likely outgoings are too, in the form of a mortgage, childcare and possibly school fees.
You may have savings you won't need for decades – you can invest these with a high-risk strategy as you might have in your 20s. Savings you will need sooner could be better in cash, or investments with a similar level of safety, such as money market funds. These typically invest in government bonds set to pay out in the next few months, so the income they offer is quite secure. Aberdeen, BlackRock and Vanguard offer them.
Charlotte Ransom, chief executive of investment manager Netwealth
Charlotte Ransom, chief executive of investment manager Netwealth, recommends investors in this bracket think about savings as a family. 'You could use your Isa allowance, your spouse theirs, and then put up to £9,000 into Junior Isas for each child every tax year.
'If you do that, you soon build up an attractive family nest egg.'
Ransom points out your investment strategy may vary according to family members, depending on what they are saving towards.
40-49
Your income may still be growing – 47 is the average age for peak earnings in the UK – and your outgoings are likely to be high too, possibly with children's university costs now in the mix.
However, you still have decades until retirement so could take risks with money you won't need until then.
Dan Coatsworth, AJ Bell investment analyst, says: 'Many in this group are happy to seek higher-risk investments, such as in the tech space where they might be au fait with the latest innovations. US tracker funds are popular among this age group, as America is the land of mega cap tech firms.'
50-59
You may not have specific retirement plans, but the notion may appear on your radar.
Some investors start to consider dialling down the risk in their portfolios. Bonds and government gilts tend to offer a nice ballast to shares as they are generally less volatile. The performance of shares and bonds don't tend to move in tandem, which means if your shares portfolio suddenly dips there is a chance your bond funds won't, so your losses will be tempered.
While losses will be less extreme with a mix of shares and bonds, the gains will be also.
Vanguard has five funds in its LifeStrategy range, each with a different ratio of shares and bonds depending on your appetite for risk.
AJ Bell investment analyst Dan Coatsworth
BlackRock's MyMap range is similar, but also has ethical and income-targeting options.
However, while you're closing in on the start of your retirement, you are likely decades away from the end of it. For money you will not need to touch until later, you may still wish to keep the risk ramped up.
Although your children may no longer be financially dependent on you, you could still consider your Isas as a family.
'Contributing to the Isas of family members can be a good way of passing on wealth at this age,' says Ransom. 'If you survive for seven years after making the gift, it falls out of your estate for inheritance tax purposes.'
60-69
Now you may prioritise generating income from your investments rather than growth.
Funds and investment trusts comprised of company shares can produce an income, as well as bonds and gilts.
Single shares that tend to pay a good dividend feature heavily in popular investments for people of this age and above.
Coatsworth says: 'Large income stocks feature heavily such as Legal & General. Older people might feel these are trusted names – companies that won't disappear in a puff of smoke.'
However, the dominance of these shares in older investors' portfolios may also be an accident of history. In the 1980s, investing in companies was more common, and the passive index funds now beloved of younger generations were less common.
Ransom warns: 'Older investors should proceed with caution – having too much of your money in just one stock is highly risky.'
70 plus
You may choose to rely even more heavily on investments that produce an income at this age for day-to-day expenses.
At all ages, your Isa portfolio should be considered within the context of other assets. If you are generating income from your pension you may use your Isa to continue to grow or preserve your wealth.
And the winner is…
We asked AJ Bell which group would have fared the best over the past three years if they'd split their Isa equally between the five most popular investments.
The winner was 30-39-year-olds with an 85 per cent return, largely because they held US chip company Nvidia, which enjoyed growth of 344 per cent. This also bumped up the returns of 40-49-year-olds, at 81 per cent.
In third place was 80-89-year-olds, thanks to strong returns from Aviva and Lloyds – a 36 per cent return overall.
The lowest return, 22 per cent, was by 18-29-year-olds.
However, the portfolios with the highest returns are not necessarily the best overall. Very strong returns often point to high volatility – and income rather than returns may be more valued to some investors.
