Money Answers: Can you start investing later in life?

BusinessDesk investments editor Frances Cook responds to emails from readers each week, answering questions about money. Below, you will find her expert advice. Send your questions to [email protected].

Hi Frances,

Love your podcast. Super helpful and accessible. I have a question though, if you have the time. 

Rightfully, you and your super guests talk about investing for the long term and should ride the ups and downs. 

However, given that an event like the dot-com crash took 15 years for the Nasdaq to recover to new highs from the low, what would you say to someone who started later in their investing career, say the mid-40s -early 50s? 

I understand that as you get older you should increasingly de-risk but I’d say 15 years is still considered "long term" in the market. 

I'd love a deeper dive into investing for people who only started later in life. Thanks in advance. Again love your work!

Cheers,

W.

Hi W,

I love this question because there are layers to it. The short answer is yes, I think there’s still a lot of value in investing at a later stage in life. 

But let’s start with your very reasonable concerns about what happens after a market crash. 

The Nasdaq

I think your example of the Nasdaq stock market is extremely relevant to this conversation. 

For those who missed it, the dotcom crash was one of the nasties, in 2000. Everyone had been getting more and more excited about the digital revolution, until a bit of a bubble formed. 

Then it went pop, and the financial fallout wasn’t fun. 

It’s often part of the cycle when something new and exciting is happening. People get overexcited, and the finances become wobbly until a new normal is reached. 

You’re right that the Nasdaq took 15 years to recover, but that’s the most dire example to look at. 

There are lots of different stock markets where people can choose to list a company, and let you buy shares. They all have their own personalities. 

The Nasdaq is the edgy little brother, full of tech companies. So it would have been hit harder than others, by a crash that was specifically focused on tech businesses. 

By comparison, the New York stock exchange is a much more stately grand old dame, which has many of the oldest and most stable blue chip stocks in the US. 

Here in New Zealand, our stock market is known for giving out more dividends, but not having companies grow in value as much. 

They all do their own thing. 

So what happens when we compare the Nasdaq experience post-dotcom crash, with something a little broader? 

The S&P500 is commonly used as a measure of how the overall US market is doing, as it tracks the top 500 companies there, and covers many different sectors, industries, and types of businesses. 

In comparison, the S&P500 only took four years to recover from the same dot-com bubble, because the companies there weren’t as exposed to that particular risk. 

Diversify

This is why investing gurus always bang on about diversification. It just means don’t put all your money into one thing; spread it around. 

Not just one company, or even 10, but hundreds. 

Not one industry, but many different types of companies. 

Not even just one country, either. There are global funds that make it easy to have your $5 spread across many different economies in one go. 

I love tech companies. They can be big earners when the going is good. 

They also can be a huge force for good. There’s no way I would have the work-life balance I do, able to work at home very productively, without them. 

So I invest in them. But I absolutely don’t stop with them, because that’s far too risky. 

I also use the sharemarket to put money in pharmaceutical companies, some in commercial property, transport and trucking, and a whole bunch of others. 

I make it easy for myself by using index funds as the core of my strategy, automatically spreading myself across hundreds of different companies, without having to agonise over choosing each one. 

The long game

You also mention you potentially have only 15 years left to invest. 

That may not be the true timeline. 

When I’m looking at what to do with my money, the first thing I do is consider how much time I will have before I need it. 

People often talk about having less risk as you get older because that’s a quick way to include the time calculation. But when you’re looking at your individual timeline, age is only one factor. 

When you, personally, will need that money is the true question. 

So, as you say, the money I need in the next year or so shouldn’t be in the sharemarket. I keep that in savings. 

Investing money is for money that I can leave alone for five or 10 years. 

But you could (hopefully!) have a lovely long retirement, maybe 30 years or so. 

Your retirement nest egg will last a lot longer if you don’t switch all your money to a savings account in that time. 

You are unlikely to want to spend it all at the beginning. So you could take out a chunk that you expect to spend in the next five years or so, and then leave the rest there, earning, and growing. 

If you take a strategy like that, you might have 45 years of being an investor, not 15. And most likely, far more money overall, to enjoy that well-earned retirement.

That 45 years gives you the time to reap a lot of the rewards from the sharemarket.

Send questions to [email protected] if you want to be featured in the column. Emails should be about 200 words, and we won't publish your name. Unfortunately, Frances is not able to respond to every email received or offer individual financial advice. 

Information in this column is general in nature and should not be taken as individual financial advice. Frances Cook and BusinessDesk are not responsible for any loss a reader may suffer.