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Hitting Your Peak: Investing Guidelines for Your 40s and 50s

 As you move through your peak earning years - usually considered your 40s and 50s - you'll probably see your net worth steadily rise. At the same time, you'll still have some work to do before you realize your financial goals. That's why it's important to have a solid plan in place. Here are some steps to help keep your portfolio on track.

Organize your portfolio. Asset allocation - the strategy of dividing your portfolio among the major asset classes of equities, fixed-income securities, and cash equivalents - is vital no matter what life stage you are in. Your asset allocation should be based on your goals, your tolerance for risk, and your time horizons. It probably will require modification or rebalancing over time. Generally speaking, the larger the equity portion of your portfolio, the greater the potential for growth and the greater amount of risk. On the other hand, the more fixed-income securities you include, the greater the potential for income and preservation of principle. There are risks associated with fixed-income investments, although they generally incur less risk than equities.

Don't overlook tax planning. Chances are your income tax bracket is higher now than it was during your early years. It may even be higher than when you retire. Consider maximizing pretax contributions to your employer-sponsored retirement plan or making deductible contributions to an IRA (if you're eligible) to help reduce current income while providing tax-deferred savings opportunities. Also, keep in mind that short-term capital gains are taxed as income, while long-term capital gains and dividends are taxed at lower rates. Finally, explore the potential benefit of including tax-exempt bonds and bond funds in your portfolio.* 

Protect what you've accomplished. As your wealth continues to increase, it's important to preserve what you've accumulated and safeguard your future. That's why estate planning and life insurance are two of the cornerstones of a sound financial plan. A qualified financial professional can help you implement an estate plan that is best for your situation or review an existing plan to ensure it is still consistent with your goals. Also, be sure you have enough life insurance in place to help cover any liabilities -- such as your mortgage -- and protect your family's financial future.

Financially speaking, mid-life shouldn't be a time of crisis, but rather a time to take advantage of some of your most productive years. In the long run, you may be in a better position to enjoy the fruits of your labor.

*Some tax-exempt investments may be subject to the federal alternative minimum tax as well as federal or state capital gains taxes.

This article is not intended to provide specific investment or tax advice for any individual. Consult me, your financial advisor, or your tax advisor if you have any questions. 

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