Most investors understand the power of compound interest. “Time in the market, not timing the market,” is a lesson we hear often. But not everyone has equal time. What if you’re late to the investing party?

Let’s say you’re just now starting to invest in your 40s and 50s. Do the same long-term investing principles still apply? Or do you need a different playbook?

That’s what we’ll explore in this article. Because while it’s never too late to start creating a stronger financial situation for yourself, there are different considerations (and opportunities) for you. This is just my take on how I'd approach this, but if you need personalised financial advice, reach out to a financial advisor to help you out.

Now, let's get into it.

Time horizon

This is the area which requires a fundamental shift in thinking. I find people in their 40s and 50s often say: “holy crap, retirement is right around the corner, I only have 10-15 years or so to work with.”

The assumption here is that they need to be more conservative with their investments. After all, they’ll be accessing this money in 10-15 years. So clearly, they can’t afford to “lose money” and sit through a painful downturn, can they?

To me, this is the wrong way to frame it. Sure, you may be heading towards your super access age. But you aren’t going to pull out all your savings. Most likely, you’ll only be using a small percentage of the balance each year (say 5%). By contrast, the overwhelming majority of the fund – 95% by definition – will remain invested for much longer.

This means your time horizon is far longer than it seems. In fact, if you’re 45 now, there’s a strong probability that your timeframe is actually 40+ years. And that means you’ll do best to keep a healthy exposure to growth assets, even if they’re “riskier” in the short term.

Don’t get me wrong, it’s going to royally suck to sit through a 25% drawdown (or worse). You’re going to think you’ve made a mistake and that you should’ve kept more in cash. Spoiler: everyone else is going to think the same.

Ultimately, you have to trust that you’re investing for your future-self.

Common worries for Late Starters and how to solve them

“I haven’t saved enough”

The solution for this is, unfortunately, you’ll need to save more aggressively. That could mean working more (or longer) than you’d like, and spending less than you’d like.

“I can’t afford to lose money”

I understand the desire to be conservative. But you’ll generally need to take some level of risk to get a better long term outcome. And remember, you are still dealing with a very long timeframe! In some ways, you can’t afford NOT to take some risk. Now, obviously everyone’s risk tolerance differs. It’s also important to remember that there are no guarantees in investing – regardless of the risk level. But I’d encourage you to begin taking small amounts of risk and getting used to market movements as soon as possible.

“But seriously, the market might fall as I’m investing”

It probably will. And that's actually a good thing. While it won’t feel good at the time, during your 10 year accumulation phase, you should actually hope the market falls. That way, you get to accumulate even more while prices are low. And when the market eventually recovers, you’ll own a much higher quantity of shares than you would have if prices stayed flat before going up.

“I’m worried I don’t know enough”

Look, it can seem like there’s an infinite amount of things you need to learn. But it’s just not true. The truth is, the most powerful investment strategies are simple. So, all you need to do is learn the basics, which you can do with blogs like these. Once you grasp the fundamentals, simply keep revisiting the same lessons over and over, until they’re etched into the walls of your mind.

General tips on late starter investing strategy

Use super. Given you may be unlikely to retire before super access age , it makes sense to focus a lot of your investing in this area. There are still advantages for having money outside super – flexibility to reduce work sooner, cover against job loss etc. But for the most part, the lower-tax environment of super will be well suited to late starters. Add as much as you can – within limits, of course – and you’re likely to end up with a good chunk more after 10-15 years, assuming your personal tax rate is 30% or higher.

Get out of debt. Balance the above goal with paying off any debt you have. A mortgage is likely to be the only debt remaining at this stage of life (hopefully!). And despite investing being potentially more lucrative, getting rid of your mortgage is highly recommended for late starters. Not only does this remove a large cost from your life forever, but it’s also more effective when it comes to pension eligibility (since a debt free home is not included from the calculation, yet investments and super are).

Have a housing plan. If you expect to reach pension age without a home and live off the pension, things are tougher. Because of the above point, it’s often more efficient to have a home rather than the same wealth in investments as a renter. So if you think you’ll fall short of being semi-prosperous (or it’s too late), you’ll probably want to prioritise home ownership. You could do this by using your super , any investments you manage to build, and money you’ve been able to save to put towards a home. Ideally by pension age, you’ve got a paid off property. I’d even downsize my home and lifestyle as much as necessary to ensure this was the case. This will then make living off the pension much more comfortable.

Fund choices. Whatever you do, choose a simple portfolio. I can’t emphasise this enough. You simply don’t have time to be fluffing around trying to pick stocks and beat the market. Yes, I know you’d like higher returns. But the brutal truth is you’re more likely to hurt the outcome than help. You can’t afford the time, effort and (likely) money wasted trying to find the next Nvidia, or attempting to create some magical combination of ETFs that will provide killer returns and make all your retirement dreams come true. Now is the time to be smart and sensible. Don’t try to force your money to work harder than it reasonably should. It’s a recipe for disaster.

Create a plan and stick to it. If you’re serious about building a great financial position over the next ten years, you need to follow it through with a plan. It often helps to write down your strategy so you can come back to it and refocus if you get distracted. Answer the following: How much of your pay will you save? How often will you invest? Fortnightly, monthly? What funds will you buy? This will help remind you what you’re doing and why. Your actions and money have a purpose.

Look for enjoyable part-time work. A big part of most people’s desire to escape the rat race comes from an all-consuming, soul-sucking job that drains us of our energy. We dream of not having to work, and maybe even fantasise about the idea of doing nothing. But in reality, you’ll likely end up wanting to do something productive later… at least a little bit. So I encourage you to think about potential part-time work options now. What are some roles you could see yourself doing? Which part-time jobs would suit your personality, that you could fit around your chosen lifestyle?

How do you invest when you can’t afford to “ride out the cycles”?

This is a fantastic question and a valid concern. If I was a late starter, how would I approach it?

Remember what I said earlier about time horizon? You’ll be invested far, far longer than the timeframe you’re thinking about right now. So, to maximise your lifetime nest egg and the living standards of future-you, you’ll need to think a little longer than just making it to 60.

It's best to talk to a financial adviser about what works for your personal situation, but I'll share my thoughts. I would invest as close to “normal” as you can manage. And generally that means having a high exposure to shares. Some would suggest it’s the time to take it easy and play it safe. I understand why people say that and that can suit some people, but I don’t believe it will lead to the best outcome most of the time.

I believe in a “safe” strategy, but an aggressive allocation. That means choosing investments that are low cost, widely diversified and with the strongest likelihood of good multi-decade performance (safe). But, at the same time, having a relatively high exposure to those assets to maximise long term growth.

The main concern people have is usually something like this: “What if I invest all this money now, then when I hit 60 and want an income stream, the market tanks?”

There are multiple things you can do and need to keep in mind here…

• You can keep some cash to smooth out the bumps and “top up” your income.
• You also may have part-time work income you can tap into.
• You might also decide to spend less for a little while until things recover.
• You could invest in a less aggressive fund (more balanced) to reduce the drawdowns while accepting this will also limit the long term upside.
• The pension will be available as a backup income stream very soon.

The cash buffer is an important concept, both practically and psychologically. I’d encourage late starters to build a nice cash cushion they can use in retirement. Tap into this during bad years to save from depleting your investments/super.

If you’re new to investing and still in the building phase, this can also help you feel more comfortable with the volatility, since you always have cash to top up your holdings when they fall.

An unusual backup plan

There’s one more thing I would consider as a late starter with limited wealth. Assuming I was a homeowner, I’d think about a reverse mortgage.

For those unaware, this is where you can turn some of your home equity into an income stream. The government has rolled out an offering called the Home Equity Access Scheme. You need to be pension age (or older) and be eligible for a pension to access the scheme.

Now, I know most people will shudder at the idea. But I wouldn’t be against it if it suited the situation. As long as any “cash-outs” or borrowings are kept modest as a portion of the property value, this can be another perfectly sustainable way to live off your assets. And let’s face it: most people end up with the majority of their wealth tucked away in a single home, so it’s usually a large pool of equity.

With a home value of $700,000, I see absolutely no issue accessing something like $10,000 each year. This equates to 1.5% of the property’s value. Over the long term, I’d be perfectly comfortable with that since the property is likely to grow in value at 2-3x that rate.

The interest rate is very reasonable at the time of writing: 3.95%. It’s worth digging into the details to find out what limitations and conditions apply, but I would certainly keep it in mind as a backup plan for later in life.

Investing lump sums as a late starter

Some late starters find themselves at a later stage with significant chunks of money to invest. This seems to happen more often than with younger people.

It may be from an inheritance, or the sale of a business or a rental property. With these folks, there’s often a desire to invest in shares, because they’ve heard things like “time in the market” and the power of compounding. They might also want to start living off this money straight away.

Should late starters approach lump sum investing differently? What about when the market is at an all-time high? How do they have conviction to dump it in the market immediately to start living off the dividends and growth?

Tough questions. As we know, dollar-cost averaging is far easier psychologically. It also helps avoid the worst outcomes, like investing a lump sum before a big market fall. But some odds tell us that investing a lump sum can be a profitable strategy.

So, how should we approach this? It really depends on how the individual would handle different scenarios. If there’s a chance they’ll panic-sell or be riddled with fear about their choice, I’d say the lump sum approach isn’t worth the risk.

Instead, dollar-cost averaging is likely to be better suited to this person, assuming they’d already considered the other things we’ve spoken about: cash buffer, super, mortgage.

If the goal is to invest the money and live off the income, there’s less wiggle room. One option here is to keep working until the money is invested and the income stream has been solidified with some backup plans in place.

Another option is to begin living off some of the money while dollar cost averaging the rest into the market. Depending on the amount of money relative to the person’s needs, this may work just fine.

At the end of the day, it does come back to the details of each situation, so unfortunately, there’s no blanket answer.

Final thoughts

The more I write about this stuff and meet people with all sorts of circumstances, the harder it is to give blanket answers. But hopefully this article helps you think through the options involved and figure out how to approach things based on your own situation.

Starting late is not a roadblock to achieving a form of Financial Independence and living a great life. It just means the road is a little more uphill than earlier on.

Your big advantage is that super access is right around the corner. And not far from that is the most common retirement income stream of all: the pension.

Between part-time income, investments, super, cash buffer, paying off debt, and possibly even a pension, there are multiple income streams you can utilise and ways to strengthen your situation.

As long as you take committed action and remain consistent in your savings habits, there’s still a fruitful and prosperous retirement waiting for you.

Happy long-term investing!


Dave’s best-selling book, Strong Money Australia, is available on Amazon. Listen to the audiobook on Spotify or Audible.