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How to Invest in Yourself When You’re in Your 40s

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You’ve reached your 40s, have a family and a job, and maybe you think it’s time to coast into the future. Think again.

Decisions you make now can impact whether the second half of your life will be filled with prosperity and health — or not. Examine these seven personal and financial examples of how to invest in yourself now for a wealthy tomorrow.

 

1. Set Up an Emergency Fund

The furnace goes out or the roof springs a leak. Do you borrow to pay for the repairs? The correct answer is no. In order to successfully meet your present and future financial goals, you need “insurance” for unexpected life snafus.

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Financial emergencies will always arise when you least expect them, so being prepared is your best defense. You should have three to six months of your living expenses in an easy-to-access account for such occasions.

For example, without an emergency fund, if your roof needs a $2,000 repair, you would be forced to borrow money for the repair. If you use a credit card, which charges 18 percent interest to pay the repair, it will take you eight months to pay off that $2,000. And that’s with an added $124 tacked on for interest in addition to the $300 you’ll have to fork over every month. This can put your budget in disarray and cause you to neglect other financial commitments.

You should always keep your finances in order so you can meet your current and future financial needs — especially in your 40s. A cornerstone of sound financial management is financially preparing you and your family for the unexpected with an emergency fund.

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2. Expand Your Human Capital

If you’re looking to retire at the full retirement age of 67, now is the perfect time to maximize your human capital and subsequently your lifetime wealth. Human capital is similar to any capital; it’s all about investing in yourself, typically through education or training that will benefit you in the future.

Consider your career and working years as your human capital. If you earn $70,000 per year, then you’ll have earned $1,890,000 between the ages of 40 and 67. Think about how you can maximize your human capital so that it will be worth more over time. In fact, how you manage it over the next 26 years could be the difference between a comfortable retirement and a tough one.

Take courses or gain an advanced degree to boost your lifetime earnings and maximize your human capital. The well-respected Chronicle of Higher Education listed the median earnings for each of the following education levels. The data is sourced from its 2011 Current Population Survey.

Education Level Median Annual Earnings
Less than 9th grade $28,294
9th-12th grade without a diploma $31,162
High School Graduate $50,401
Some College With No Degree $60,980
Associate Degree $70,450
Bachelor’s Degree $105,552
Master’s Degree $124,341
Professional Degree $154,333
Doctorate $162,159

By devoting time to increasing your education, or skill level within your field, you have the opportunity to significantly grow your lifetime earnings. Your 40s are the ideal time to commit to additional education as you will have many years ahead to amplify your increased earnings.

 

3. Maximize Your 401k Contribution

Many experts recommend putting retirement savings first — even above children’s college education. No one else will save for your retirement, yet kids have other options to pay for college.

For 2023, the maximum contribution amount for 401(k) plans is $22,500. [3] This might sound like a lot, but consider the benefits. If you start with zero retirement savings at age 40, and invest $22,500 per period, you can end up with over $1.5 million at retirement age 67. [3a..used 32%, which is $22,400 and $70,000 annual salary] And that’s without considering any company-match contribution your employer may offer.

4. Invest in Your Health

Now is the time to make your health a priority for the present and the future. Julie Rains, RRCA-certified running coach and personal finance journalist, found that in her 40s her health had taken a back seat to kids, work and life commitments. She recommended joining a gym, YMCA, personal training, fitness classes, biking or finding an activity that works for you. After choosing your health path, take the time to practice and implement your healthy habits.

According to the Physical Activity Guidelines for Americans from the U.S. Department of Health and Human Services, adults should do at least 2 hours and 30 minutes to 5 hours per week of moderate-intensity exercises, or 1 hour and 15 minutes to 2 hours and 30 minutes per week of moderate- and vigorous-intensity aerobic activities. [5, p. 8] For additional health benefits, the U.S. Department of Health and Human Services recommends that adults also do strength-training activities of at least moderate intensity that involve all major muscle groups at least two days per week. [5, p. 8]

Staying healthy will not only be good for you physically, it will be great for your finances as you avoid unnecessary medical expenses.

5. Prioritize Your Mental Wellbeing

First, take some for yourself each day — even if it’s just for a few minutes — and breathe deeply. Think about the good things in your life. Also, strive to take a few hours each week to do something you enjoy, such as spending time with loved ones, taking a hike or working on a treasured hobby.

Next, make a vow to no longer push aside the way you feel and try to muscle through. Instead, acknowledge those feelings of anxiety, guilt, depression or stress.[5] Then, decide if you need to seek professional help to deal with them.[5]

Ask your employer’s human resources department if your employer offers an Employee Assistance Program, also known as an EAP. [5a] If so, you may be able to get mental health services for free. [5a]If you’re attending college, you may be able to get free mental health services there. [5a]Other options are online counseling, mobile apps, support groups and federally funded health centers. [5a]

If your mental wellbeing is suffering due to lack of boundaries, such as people demanding too much of your time or disrespectful coworkers, work on setting and enforcing appropriate boundaries. Once you decide what your boundaries are, you’ll need to communicate those boundaries to those around you. Additionally, always speak up when anyone fails to respect the boundaries you’ve put into place.

6. Build Your Net Worth With Dividends

In today’s uncertain employment climate, those workers with more than one source of income are more likely to prosper during a layoff and in retirement. An easy source of additional income is receiving dividends and capital gains from investing. Although investing for retirement is important, committing to stock and bond funds outside of a retirement account is also useful for building your net worth.

Since 1988, dividends represented 40 percent of total financial asset returns. Fund companies offer many high dividend funds. Consider these high dividend stocks to create an additional income stream for the future. Money invested in stocks and bonds isn’t for short-term goals, but is an investment for your future.

7. Do a Lifestyle Audit

A lifestyle audit is an overview of your own living standards in regards to your income. In addition to examining whether your lifestyle is consistent with your income, there are several other aspects to consider with a lifestyle audit.

It’s easy to let expenses creep up over time. A subscription here, a gadget there, and before you know it, you’re spending thousands of dollars more a year. By recouping unnecessary and superfluous expenses, you’ll free up cash for what really matters.

Start your audit by looking over your expenses for the last several months. Ask yourself three questions:

  1. Is this expense consistent with my short- and long-term goals?
  2. Is this expense consistent with my values?
  3. Is this expense giving me both short- and long-term enjoyment?

If you answered no to any of those questions, consider eliminating the expense and diverting the money toward savings, investing or other activities that fit in with your current and future goals and values.

Investing in Yourself at 40 Will Pay Off Now and Later

By the time you’re in your 40s, you’ve got your career and family on track — make sure your finances and wellbeing are on track too. Make decisions that will support not only the lifestyle, health and mental clarity you want now, but also your future goals and aspirations.

 

Cynthia Measom contributed to the reporting of this article.

This article originally appeared on GOBankingRates.com: How to Invest in Yourself When You’re in Your 40s

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Predictions for the housing market, lower internet costs and stable stocks: Must-read business and investing stories – The Globe and Mail

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As interest rates continue to put pressure on mortgage costs, the Bank of Canada predicts home prices will continue to fall before sales pick up later this year.Justin Tang/The Canadian Press

Getting caught up on a week that got away? Here’s your weekly digest of The Globe and Mail’s most essential business and investing stories, with insights and analysis from the pros, stock tips, portfolio strategies and more.

High interest rates will continue putting pressure on Canada’s housing market

The Bank of Canada this week increased interest rates for the eighth consecutive time but said that it expects to hold off on further hikes to “assess whether monetary policy is sufficiently restrictive to bring inflation back to the 2-per-cent target.” As Mark Rendell reports, the central bank raised its benchmark rate by a quarter of a percentage point, bringing the policy rate to 4.5 per cent, the highest level since 2007. With borrowing costs and mortgage rates at their highest level in years, many potential homebuyers have been shut out of the real estate market, writes Rachelle Younglai. The typical home price across the country is already down 13 per cent from its peak last February amid the bank’s attempts to rein in runaway inflation by reducing access to cheap loans. As such, the bank is predicting home prices will decline further before sales pick up later in the year.

These stocks offer portfolio stability amid rising prices

Rising interest rates were the main contributor to the woes of the stock markets in 2022. Interest-sensitive securities such as REITs, utilities, telecoms and bonds all tumbled as rates steadily increased. Combined with the collapse of tech stocks as the economy that benefited from pandemic lockdowns dissipated, we ended up with all the major stock markets in the red, and the Canadian bond market experiencing its worst loss in four decades. But there were some inflation-beaters. Gordon Pape looks at a number of inflation-beating securities that thrived in a rising price environment and are still doing well, although momentum is slowing.

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The clearest sign that inflation is declining

When assessing inflation, central bankers and economists will often exclude food and energy costs, but in a recent report, Karyne Charbonneau, executive director of economics at CIBC Capital Markets, said the Bank of Canada should consider the rapid climb in mortgage interest costs “when judging the underlying inflationary trend.” As Matt Lundy writes, while the bank is raising interest rates to cool demand and tamp down inflation, its efforts are having the opposite effect on mortgage payments, which have jumped 18 per cent in the past year. Although mortgages carry only 3-per-cent weight in how the Consumer Price Index is calculated, the increase is substantial enough that mortgages are now the largest contributor to annual inflation.

Could lower cellphone and internet costs be coming?

Lowering cellphone and internet bills is a top priority for Vicky Eatrides, the new chair of Canada’s broadcast and telecommunications regulator, Irene Galea reports. Unfortunately, Ms. Eatrides is inheriting a commission that is widely seen as slow to make decisions. The continuing legal proceedings of Rogers Communications Inc.’s takeover of Shaw Communications Inc. are attracting unprecedented attention to the inner workings of the telecom industry and the future of cellular service competition in Canada. Meanwhile, two CTRC policies, concerning industry rates for broadband and wireless networks, finalized during the previous chair’s term, are still being debated among industry players. Ms. Eatrides would not reveal specifics related to her plan to lower cellphone and internet costs, but added she hopes to speed up the commission’s decision-making process.

The real savings of owning an electric vehicle

With gas prices yo-yoing this past year, are the savings associated with the lower operating costs of purchasing an electric vehicle ultimately worth it? David Berman, a Hyundai Ioniq 5 owner, compares charging costs for EVs to gas-powered vehicle costs over the same travelling distance. “I’ve driven almost 10,000 kilometres – did I mention that I don’t drive much?” he writes. “I’ve saved about $780 over the past year. Over 10 years, these savings would rise, theoretically, to a total of $7,800.” Additionally, he got a $5,000 federal EV rebate when purchasing the car in Ontario in early 2022, whittling down the nearly $50,000 list price for his vehicle to about $37,200 compared with a hypothetical gas-burning version of itself.

Record-low rental vacancy rate

There are fewer apartments available to rent in Canada than at any time since 2001, according to Canada Mortgage and Housing Corp’s annual rental report released this week. As Rachelle Younglai reports, the country’s apartment vacancy rate dropped to 1.9 per cent in 2022 down from 3.1 the year before and the lowest level in more than two decades owing to higher net migration, the return of postsecondary students to the campus and the spike in borrowing costs. The country’s largest rental markets were under particular stress, with Toronto’s apartment vacancy rate dropping to 1.7 per cent last year from 4.4 per cent in 2021, Montreal to 2.3 per cent from 3.7 per cent and Vancouver to 0.9 per cent from 1.2 per cent. The national average monthly rental price for a two-bedroom rose 5.6 per cent to $1,258 last year, with Vancouver and Toronto commanding the highest rents at an average of $2,002 and $1,765 monthly.

Sign up for MoneySmart Bootcamp: If you want to improve your financial fitness, The Globe’s MoneySmart Bootcamp newsletter course is for you. This new five-part course written by personal finance reporter Erica Alini will improve your personal finance skills, including budgeting, borrowing and investing. Subscribe to the MoneySmart Bootcamp and you’ll receive an e-mail a week to work a different financial muscle. Lessons will land in your inbox Wednesday afternoons.

Now that you’re all caught up, prepare for the week ahead with the Globe’s investing calendar.

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3 reasons dividend stocks can lead the next bull market

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After a bull market like the one we experienced prior to 2022, it can be tempting to stick to the same investment strategies that have been working. But the underlying economic factors are set to be materially different in the coming years, which means the market is likely to look very different from what we’ve seen in the past 10-plus years.

This sets the stage for a market that grinds higher, led by large, profitable, dividend-paying companies. Here are three reasons dividend stocks can lead the next bull market.

Dividends may make up a larger portion of the total return

Over the past decade, dividends have contributed less than 25 per cent of the S&P 500’s total return, as years of low interest rates helped inflate asset valuations. Historically, though, dividends have made up a larger portion of the market’s total return. Dividends have accounted for an average of 40 per cent of the S&P 500’s total return since the 1930s, according to data from Fidelity Investments.

If inflation remains high, it will be very difficult for the market to grow via multiple expansion as it has during the past 10 years. This opens the door to dividends regressing to the long-term mean and making up a larger percentage of the total return than it has recently.

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Valuations are attractive for dividend stocks

Dividend-paying stocks are currently undervalued relative to the broader market judging by the price-to-earnings (P/E) ratio. The P/E for dividend-paying stocks in the S&P 500 Dividend Aristocrats was lower than the P/E for the S&P 500 as of Dec. 30, 2022. This suggests dividend-paying stocks may offer better value for investors compared to non-dividend-paying stocks.

This is common during a bear market like the one we experienced last year. The good is thrown out with the bad, as companies with consistent earnings are sold off with the same urgency as less profitable companies. This creates an opportunity that can be identified by using the P/E ratio.

Great companies with robust business models and long histories of profitability rarely go on sale, so this can be a great opportunity to add quality names to a portfolio.

Better track record

Dividend-paying stocks have outperformed non-dividend-paying stocks over long periods of time. A study of the S&P/TSX composite index from 1986 to 2021 by RBC Global Asset Management found that stocks growing their dividend had an average annual return of 11.2 per cent compared to 6.5 per cent for the overall index and an abysmal 1.4 per cent for non-dividend-paying stocks.

This trend has even held up during economic recessions, as dividend-paying stocks have shown to be more stable and less volatile than non-dividend-paying stocks. For example, the same RBC study found that dividend-paying stocks in the composite index had a standard deviation (a measure of volatility) of 13.9 per cent, compared to 23.3 per cent for non-dividend paying stocks. This indicates dividend-paying stocks have been less volatile over the long term.

Despite the potential for market turbulence in the near term, dividend stocks remain a good option for investors looking to weather any upcoming volatility and maximize their returns over the long term.

Remember that investing in the stock market carries risks and a professional investment adviser can help assess your investment goals and risk tolerance and develop a personalized investment strategy tailored to your specific needs and circumstances.

Taylor Burns is an investment adviser at Manulife Securities Inc. and Balanced Financial Wealth Management. The opinions expressed are those of the author and may not necessarily reflect those of Manulife Securities Inc.

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Weaker Orders, Investment Underscore Ailing US Manufacturing

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(Bloomberg) — US manufacturing showed more signs this week of succumbing to the Federal Reserve’s aggressive interest-rate hikes that are taking a bigger bite out of demand and risk upending the economic expansion.

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The government’s first estimate of gross domestic product for the fourth quarter and a report on December factory orders for durable goods pointed to sizable downshifts in both spending on business equipment and bookings for core capital goods.

The durable goods report Thursday showed orders for nondefense capital goods excluding aircraft — a proxy for business investment — dropped 0.2% in December after no change a month earlier. Over the fourth quarter, bookings for these core capital goods posted the weakest annualized gain since 2020. Shipments, an input for GDP, decreased for the third time in four months.

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“Taken in tandem with the output data where industrial production has declined in six of the past eight months, it is increasingly evident that the manufacturing recession is well underway,” Wells Fargo & Co. economists Tim Quinlan and Shannon Seery said in a note to clients.

Also on Thursday, the GDP report showed outlays for business equipment dropped an annualized 3.7%, the largest slide since the immediate aftermath of the pandemic. That decline was part of a broader demand slowdown, which included a smaller-than-forecast advance in personal spending.

While GDP growth beat expectations, details of the report that offer a clearer picture of domestic demand were decidedly weak. Inflation-adjusted final sales to private domestic purchasers, which strip out inventories and net exports while excluding government spending, rose at a paltry 0.2% rate — also the weakest since the second quarter of 2020.

Last month’s retreat in core capital goods orders indicates manufacturing output, which already registered sharp declines in the final two months of 2022, may struggle to gain traction this quarter.

Read more: Weak US Retail Sales, Factory Data Heighten Recession Concerns

The slump in housing is also spilling over into producers of non-durable goods. Shares of Sherwin-Williams Co. tumbled this week after the paintmaker pointed to pressures stemming from a weak residential real estate market and inflation.

“We currently see a very challenging demand environment in 2023 and visibility beyond our first half is limited,” Chief Executive Officer John Morikis said on a Jan. 26 earnings call. “The Fed has also been quite clear about its intention to slow down demand in its effort to tame inflation.”

An accumulation of inventories only adds to the headwinds. Inventory building accounted for about half of the 2.9% annualized increase in fourth-quarter GDP. For the year as a whole, inventories grew $123.3 billion, the most since 2015.

With demand moderating, there’s less incentive to ramp up orders or production as companies make greater efforts to sell from existing stock.

In addition to the aforementioned data, the latest surveys of manufacturers show sustained weakness. Measures of orders at factories in four regional Fed surveys have all indicated multiple months of contraction.

All surveys released so far for this month are consistent with an overall contraction in activity that extends back through most of the second half of 2022.

Next week, the Institute for Supply Management will issue its January manufacturing survey and economists project a third-straight month of shrinking activity.

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