How to Invest for the First Time if You're Doing So in Your 40s

You'll often hear that it's a good idea to start investing as soon as you begin to bring home a steady paycheck. For many people, that happens in their 20s.

But it's also hard to start investing in your 20s when you have other expenses to deal with and your income may be more entry-level. And to be fair, you actually shouldn't start investing for the future until you're in a place where you can cover unplanned expenses in the present. So your best bet when you start a full-time job is to focus on building up an emergency fund, and then focus on investing money for future goals, like retirement.

Meanwhile, it's easy to see how you might get to a place where you're first starting to invest in your 40s. The good news is that you may, at that point, still be a good 20 to 25 years away from retirement. That means you can afford to take on some risk in your portfolio. And so you may want to take the approach of loading up on a diverse mix of stocks that can generate strong returns between now and when you'd like to wrap up your career.

It pays to go heavy on stocks

Investing in stocks certainly carries a degree of risk. But investing over a long period of time helps to mitigate that risk, because you're giving yourself time to ride out stock market downturns.

Over the past 50 years, for example, the stock market has averaged an annual return of 10%, as measured by the performance of the S&P 500 index. But that doesn't mean that every single year over the past 50 has been a stellar one. There were periods when the stock market lost money -- a lot of it. That average annual 10% return accounts for both periods of strong returns and negative ones.

Another way to mitigate the risk of investing heavily in stocks is to diversify your portfolio. You can do this by loading up on stocks across a range of market sectors, or by filling your portfolio with S&P 500 ETFs, or exchange-traded funds. The nice thing about these funds is that they track the broad market, so you're getting instant diversification without having to do much legwork.

How much wealth can you grow in 20 to 25 years?

If you're investing for the first time in your 40s, you're actually in a pretty good spot, because you still have time to build up a lot of wealth for retirement. And if you're wondering just how much wealth you can expect to accumulate with a stock-heavy portfolio, the answer is that it depends on how much money you're able to allocate to your IRA or brokerage account each month, and how exactly your portfolio performs.

But let's say you decide to invest $300 a month over 25 years into S&P 500 ETFs that deliver an average annual 10% return. That will leave you with a portfolio worth $354,000. Make it $500 a month, and you're looking at a return of $590,000.

When you're investing at an age that's close to retirement, you need to be careful about going heavy on stocks since you don't have much time to ride out periods of turbulence. But when you're in your 40s, there is time to take on more risk. And by doing so, you might reap some pretty nice rewards.