The 4 Best Investments People in Their 50s Can Make

When you think about investing, your mind probably jumps straight to the stock market. But there are all kinds of investments at all stages of life -- whether it's buying a house, investing in education and training, or putting cash into an IRA. For example, when you're in your 20s, you might be focused on your career and building your future. As you get older, your priorities may shift.

Once you hit your 50s, you probably have one eye on how you're going to pay for your old age. It might be that you're planning to retire early. Or maybe you're thinking about working longer so you can put more cash aside. Whatever your situation, here are some investments that could make sense.

1. Tax-advantaged accounts

There are a few different types of tax-advantaged investment accounts, and not all of them are geared toward retirement. What they have in common is that they can lower your tax bill and help boost your investments. Here are a few to check out.

• 401(k): This is a tax-deferred, employer-sponsored retirement plan. Employees can opt to automatically contribute a chunk of their pre-tax paycheck and only pay tax on withdrawals later in life. The best thing? Many employers will match at least part of your contributions.
• Individual retirement account (IRA): This is similar to a 401(k), except there's no employer involved. You can defer taxes on your contributions now and pay tax later when you withdraw that money. Check out these top IRA accounts for more.
• Roth IRA: With a Roth IRA, you pay taxes on your contributions now and can make tax-free withdrawals in your retirement. Check out these top Roth IRA accounts for more.
• Health savings account (HSA): Unlike the other accounts listed above, this is not retirement focused. It works in conjunction with a high-deductible health plan and lets you contribute pre-tax dollars toward medical costs.

There's a limit to how much you can put into your 401(k) or IRA each year, and if you're in your 50s, you can make extra catch-up contributions. These aren't for everybody. But there are several scenarios where it can make sense, particularly if your retirement savings aren't quite where you want them to be.

2. Stocks, mutual funds, and ETFs

Whatever your age, the stock market is a good way to beat inflation and build wealth over time. Historically, the stock market has generated strong average returns for long-term investors. The only issue is that it can fluctuate. There will be years when your assets increase in value, and others where they might underperform or even lose value. As a result, the stock market isn't a great place for money you might need in the next five years or so.

As you get closer to retirement, you might opt to reduce the percentage of equities you hold so you're less exposed to market fluctuations. A lot depends on your tolerance for risk, how much you've got saved, and when you plan to retire. If you've still got 10 years or more until you plan to stop working, you have time to wait out any near term volatility.

If you're not an expert in stocks, don't let that put you off. You don't need to be a stock-picking wizard to build a diversified portfolio. Consider an exchange-traded fund (ETF), index fund, or mutual fund -- they can give you exposure to a mix of sectors and markets without the need to buy individual stocks.

We talked about various tax-advantaged options above. Think of them as vehicles rather than investments in and of themselves. For example, you can put a number of different assets into an IRA, just as you would in a brokerage account. If you've maxed out your IRA or want to use a straightforward brokerage to buy stocks, check out our list of top brokerages.

3. Bonds

Bonds had a bad 2022, but that doesn't mean we should give up on them altogether. Bonds pay a fixed income and are widely considered a safer way to invest than the stock market. The downside to that lower risk is that bonds often generate lower returns than equities do.

Diversification is the other reason people hold bonds alongside stocks. Bonds often (but not always) increase in value when the stock market falls. Some financial advisors advocate a portfolio with 60% stocks and 40% bonds, particularly in your 50s. This logic has come under fire recently because of inflation and high interest rates, but it's still a decent yardstick.

4. Pay off high-interest debt

This is a little counterintuitive, as it's not a specific investment. But if you carry credit card or other high-interest debt, you could make more by saving money on interest payments than you'd generate by investing it. And, unlike many investments, the return is guaranteed.

Look at it this way: The average APR on a credit card is around 20% right now. The average return from the S&P 500 -- a good gauge for stock investments -- over the past 30 years is just over 10% before inflation. There are other advantages to becoming debt free, too. In addition to giving you more financial freedom, it may boost your credit score and stop interest payments from eating into your budget.

Bottom line

A lot of financial advice centers around the importance of starting early with your investments. That's great if you're able to. But if you've reached your 50s and worried about the state of your finances, it's not too late. Look at ways to increase the gap between what you earn and what you spend so that you can invest the difference. The more money you're able to put aside today, the better positioned you'll be for your retirement.