When you’re young, saving and making investments may seem like something you only need to worry about when you’re 40. The sad reality, however, is that you reach age 40 sooner than you think particularly when you’re busy raising children virtually single-handedly. If you haven’t established short-term and long-term goals and actually implemented savings and investment plans, you’ll have a lot of expensive catching up to do.

Without question, investment plans need to change as one ages, and a savvy investor implements a plan that fits her current needs while very much keeping an eye on the road far ahead.

Between the Ages of Twenty and Thirty

Time is on your side on all fronts. By establishing healthy savings and investing habits, you can build a very bright future for yourself and your children. Even putting $100 a month into a savings account will build into a sizable amount.

If you set aside $250 a month and you earn no interest on the money, you will accumulate $30,000 in ten years! If you put that same amount into savvy investments, such as money market accounts, certificates of deposit, bonds, stocks, or mutual funds, you should earn higher rates of return, maximizing savings.

Alert

If you are 22 years old and deposit $4,000 a year ($333.33 a month) into a retirement account growing at an 8-percent annual return, those funds would build to $1 million by age 62. If you wait until you’re 32, you’d have to more than double the amount to $8,800 a year ($733.33 a month) to reach $1 million by 62.

If you are between 20 and 30, you have time to risk weathering the ups and downs of the stock market. Consider the following asset balance:

Invest 70 percent or more of your retirement funds in stocks or stock mutual funds. Allocate 25 to 35 percent of your stock holdings to riskier classes of stock, such as a mutual fund investing in small-cap domestic stocks.

Invest 15 to 30 percent of your portfolio in primarily long-term bonds to even out the ups and downs of your portfolio.

Why invest in bonds or other less-risky investments that may provide you with lower returns than stocks? Bonds and other investments that move in response to different factors than stocks help dampen the volatility of your portfolio. A portfolio that returns 8 percent every year without fail will provide you with higher returns over time than a portfolio with more volatility, returning 7 percent one year and 9 percent the next, despite its average return of 8 percent.

Diversification investing some in stocks and some in bonds dampens the volatility of your portfolio while potentially increasing returns. It’s wise to also diversify within your stock holdings. Investing in a range of stocks large-cap domestic stock, emerging-market stock, and so on through a range of mutual funds or exchange-traded funds will often bring higher returns over time, and the balance offers some protection against losses.

If you don’t have enough money to buy shares in a number of funds and won’t be able to save much on a regular basis, choose a broad-based stock index like one that tracks the Standard & Poor’s 500 Index or the Wilshire 5000 index. The same advice holds for bonds diversify your bond holdings by purchasing an index fund or ETF invested in bonds.

Essential

One way to be diversified in the right asset classes over time is to invest in a target maturity fund. You select the date when you intend to use the money (at age 65, or in 20 years, for example), and an expert money management firm will manage your funds, altering asset allocations and risk levels over time with that target date in mind.

Between the Ages of Thirty and Forty

Whether you are 25 or 35 years away from retirement, time is on your side. Even starting from scratch, there’s still time to be a millionaire; however, by waiting longer to get started, you’ll need to save $500 per month starting at age 30, or $1,150 per month at age 40 and get an 8 percent return to become a millionaire by age 65.

The good news is that you have decades before you retire, so you can place your savings in higher risk investments that will earn more than 8 percent a year. You’ll also have time to recover from a setback if the stock or bond markets stumble. Consider the following asset allocations:

Invest 65 to 85 percent of your funds in stock, including about 25 to 35 percent in risky stock classes.

Invest 15 to 35 percent in a range of bonds, particularly long-term bonds.

Remember to stay diversified within your stock and bond asset classes not taking too much risk by investing a large part of your portfolio in one kind of stock, especially the stock of one company. On the other hand, as a financially savvy woman, you should always be willing to take calculated risks in the stock and bond markets. There is a place in almost every portfolio for some risky securities.

Keep in mind that the sooner the money is needed, and the more important it is to maintaining your standard of living, the lower should be your allocation to very risky securities. In a retirement account at 30 to 40 years of age, you have a lot of time and probably don’t need the money for decades, so you can technically stomach a lot of risk.

On the other hand, investing isn’t worthwhile if the swings in your portfolio keep you up at night. You’re the best judge about the amount of portfolio volatility you can stand, but remember that the bad months will probably be more than offset by the good ones.

Between the Ages of Forty and Fifty

You’re older, wiser, and still have 15 to 30 years until retirement, key years to grow your assets so that when you reach 50, 60, and beyond, you’ll have enough socked away to fund your expenses and whatever unknowns you encounter.

Consider the following asset allocation:

Invest 60 to 70 percent of your funds in stock. You still have time to come back from setbacks, and should have some exposure to risk.

Invest the remaining 30 to 40 percent in bonds.

If you’re 50 with no savings and want to be a millionaire in 15 years, you have to save $2,970 per month and invest it so it grows at 8 percent every year.

Between the Ages of Fifty and Sixty

You’re aged to perfection, and retirement is just around the corner. If you haven’t yet done so, it’s imperative that you build a nest egg. Because you will soon begin to sell off parts of your portfolio to fund retirement needs and desires, it’s time for you to dial down the risk level of your portfolio.

Alert

S&P 500 index investors lost 25 percent on their stock holdings from April to July of 2002. During market adjustments, the press jumps on the bandwagon, bombarding the public with bad news, causing many to reflexively dump their entire stock portfolios. If you have diversified your investments within the market and can learn to ignore the skeptics, the market generally rights itself.

You might consider having 55 to 65 percent of your portfolio in stocks if you are 15 years from retirement, and a lower percentage each year as you approach the big date. It’s still important in most cases to own stock and other risky assets in retirement if you have enough money and emotional security to tolerate the volatility.

If you are less than 10 years from retiring, consult with a financial advisor to evaluate your asset allocation plan in detail, focusing on what and how much you will need to have in place before you are able to retire. If you haven’t saved enough, you may have to drastically cut back on expenses in order to maintain your lifestyle in retirement. You may have to downsize, trading your present house for a less expensive one or even moving to an area where living expenses are substantially less.