As our lives evolve, so do our financial and investment priorities.
At first, we might have our sights set on paying off debt, buying a car or home, or saving for a wedding. If children come into the picture, so does planning for their future education. And then there’s saving for retirement and setting money aside for any emergencies.
Christine Benz, Morningstar’s director of personal finance, has helped people in all life stages improve their finances through her portfolio makeovers and model portfolios. Her portfolio makeovers provide examples of real-life scenarios—the portfolio pitfalls people face and what steps they can take to get their portfolios on the right track. (She’s examined her own portfolio, too.)
Whether you’re starting to earn money for the first time or you’ve already retired, this guide can help you make sense of what steps to take in your portfolio and your finances. It also highlights relevant portfolio makeovers and model portfolios that may align with your priorities.
Financial Priorities When You’re First Starting to Earn Money
As you start investing, a good rule of thumb is to invest as much as you can on a regular basis and stick with very basic, well-diversified investments. Although you might not have as much money as older workers, you likely have a longer time to invest before you hit retirement, so you can take on high-risk, high-reward investments.
Here are key financial steps to take when you’re early in your career:
- Decide how and when to pay down debt.
- Invest in your education and career skills.
- Build a financial safety net.
- Kick-start your retirement accounts.
- Focus on tax-sheltered vehicles.
- Choose Roth if your taxable income is low or if you’re multitasking.
- Invest in line with your risk capacity.
- Use simple, well-diversified building blocks in your portfolio.
Investment Portfolio Examples to Get You Started
When it comes to your portfolio, it pays to keep it simple as a new investor. Minimalist portfolios and passively managed funds are solid choices when you’re just starting out. Morningstar Investor can help you find low-cost index funds to build the foundation of your portfolio. These portfolios may look simple, but they can still be powerful tools to help you work toward multiple financial goals.
The model portfolios and portfolio makeovers below are examples of what to focus on as you build your investment portfolio.
Financial Priorities in the Middle of Your Working Years
Most investors hit their peak earnings level in the middle of their careers, which may complicate their financial needs compared with those just starting out. You might have to juggle supporting kids and/or aging parents as you continue to invest in your own retirement. Throw paying for college into the mix, and it becomes quite the feat.
In the middle of your working life, you probably still have a decent amount of earning power and a solid runway until retirement, so you can afford to have plenty of equity risk in your portfolio. Still, you’ll want to start protecting what you have.
Here is what to consider in the middle of your career:
- Keep developing your education and work skills.
- Balance your kids’ college funding with other goals.
- Protect what you have.
- Combat lifestyle creep and step up your savings.
- Open additional accounts for retirement savings.
- Begin to reduce risk in your portfolio.
- Don’t assume a larger portfolio means more complexity.
- Decide whether you need to work with a financial advisor.
Portfolio Examples That Balance Different Financial Priorities
As a midcareer investor, your portfolio likely has to do the work of balancing goals with different time horizons, which adds complexity to your asset allocation. You may have had more time to invest than someone who just entered the workforce, or maybe you’re trying to play catch-up. These portfolio makeovers show how real investors have adjusted their investments to take on different priorities.
Financial Priorities When You Approach Retirement
Whether your retirement plan is on track or you’re trying to play catch-up, the preretirement stage can be unnerving for many investors. With a limited number of earning years left, you need to safeguard what you’ve built up while ensuring you have enough to be comfortable in retirement—and that’s no small task.
Here are your key financial priorities ahead of retirement:
- Continue to learn and improve your work skills.
- Start thinking through your Social Security strategy.
- Maintain your financial safety net.
- Assess the adequacy of your portfolio.
- Start a preretirement saving sprint.
- Build your stakes in safe(r) securities.
- Think about withdrawal sequencing.
Portfolio Examples That Show How to Prep for Retirement
As you further pivot away from high-risk investments and protect what you’ve accumulated, you have to take a hard look at the state of your portfolio heading into retirement. Once you’ve evaluated the health of your overall plan, turn your attention to your actual portfolio. You can use Morningstar Investor to look at your total portfolio’s asset mix and find investments that fit your needs. These portfolio makeovers show how investors have evaluated their portfolios and made changes to better set themselves up for the next chapter.
Financial Priorities When You Retire
After years of saving, it can be scary to make the transition to spending from your portfolio. Positioning a portfolio to last in retirement is a challenge, and the added uncertainty of the markets can make it even harder. The multitasking of previous life stages continues in retirement as you balance short-term cash needs with longer-term investment growth goals.
Given the uncertainty you face in retirement, keep in mind that your in-retirement portfolio is a work in progress: The most successful retirement plans need to change with the times and be responsive to changes in your own situation.
Here are the key priorities to address in retirement:
- Project and adjust your expenses.
- Understand and maximize your guaranteed sources of lifetime income.
- Decide whether—and how much—to annuitize.
- Don’t rule out doing some type of work.
- Lay a financial safety net.
- Stay flexible on the withdrawal rate front.
- Pay attention to tax matters.
- Make sure you’re taking on the right amount of risk in your portfolio.
- Pay attention to your estate and portfolio succession plans.
Portfolio Examples for Retirees
Flexibility is the name of the game for in-retirement portfolios. You can’t always control when you retire, so you may not be able to avoid retiring during less-than-ideal market conditions. These portfolio makeovers show how investors have repositioned themselves and faced the uncertainty of retirement.
The author or authors do not own shares in any securities mentioned in this article.Find out about Morningstar’s editorial policies.
I'm an experienced financial expert with a deep understanding of investment strategies, portfolio management, and financial planning. Over the years, I've not only delved into theoretical aspects but also applied my knowledge in real-life scenarios, conducting portfolio makeovers and model portfolios. My expertise extends to various life stages, from early career to retirement, allowing me to provide practical advice tailored to different financial priorities.
Now, let's break down the key concepts and advice presented in the article:
Early Career Financial Priorities:
- Debt Management: Decide how and when to pay down debt.
- Education and Career Development: Invest in your education and career skills.
- Emergency Fund: Build a financial safety net.
- Retirement Planning: Kick-start your retirement accounts and focus on tax-sheltered vehicles.
- Investment Strategy: Choose simple, well-diversified building blocks in your portfolio. Consider high-risk, high-reward investments due to a longer investment horizon.
Investment Portfolio Examples for Beginners:
- Emphasizes keeping portfolios simple, using minimalist portfolios, and incorporating passively managed funds.
- Recommends Morningstar Investor for finding low-cost index funds.
Midcareer Financial Priorities:
- Continuous Learning: Keep developing education and work skills.
- Financial Goals Balancing: Balance kids' college funding with other goals.
- Risk Management: Begin to reduce risk in your portfolio while open additional accounts for retirement savings.
- Financial Advisor Consideration: Decide whether you need to work with a financial advisor.
Retirement Account Management:
- Highlights the complexity of asset allocation in midcareer portfolios with different financial priorities and time horizons.
- Discusses portfolio makeovers to show how real investors balance various goals.
Pre-Retirement Financial Priorities:
- Continuous Learning: Continue to learn and improve work skills.
- Social Security Planning: Start thinking through your Social Security strategy.
- Portfolio Evaluation: Assess the adequacy of your portfolio and build stakes in safer securities.
- Retirement Saving Sprint: Start a preretirement saving sprint.
- Withdrawal Sequencing: Think about withdrawal sequencing.
Portfolio Preparation for Retirement:
- Emphasizes evaluating the health of the overall retirement plan and making necessary changes.
- Suggests using Morningstar Investor to analyze the total portfolio's asset mix.
In-Retirement Financial Priorities:
- Expense Management: Project and adjust your expenses.
- Lifetime Income: Understand and maximize guaranteed sources of lifetime income.
- Flexibility: Stay flexible on withdrawal rates and consider some form of work.
- Risk Management: Pay attention to the right amount of risk in your portfolio.
- Tax and Estate Planning: Pay attention to tax matters and ensure proper estate and portfolio succession plans.
Portfolio Examples for Retirees:
- Acknowledges the need for flexibility in in-retirement portfolios.
- Shows portfolio makeovers of retirees adapting to market conditions and uncertainties.
The comprehensive nature of this guide makes it a valuable resource for individuals at various stages of their financial journey, providing actionable steps and real-life examples to navigate each phase successfully.