Tips for Investing in Your 30s
In your 30s—believe it or not—time is still on your side to reap the benefits of investing across many types of investments. Don’t fall into the mental trap of thinking you must have started or accomplished all of your financial goals by age 30! This decade comes with its own set of financial challenges, so your plan should be to balance investing for the future with current life events.
Here are six tips to reach for that balance.
Start with your 401(k)
This is the first place most people should start saving for retirement—especially if your employer offers a matching contribution plan (that’s free money for you!). Getting started now on saving for retirement gives you plenty of time and reasonable paths to build a healthy $1-million nest egg by retirement—if you create a plan and stick to it!
Some reasons why starting a 401(k) in your 30s can still work out well for you:
- A 401(k) has a high annual contribution limit of $19,500 (in 2020).
- Your pre-tax contributions (meaning you don’t pay taxes on them now) are automatically put into the account from your paycheck, so you’re not tempted to spend the money.
- Plans at larger companies can offer access to inexpensive “R share” classes of mutual funds (“R” for “retirement” or “reduced price”).
Add a Roth IRA
Once you’re contributing enough to your 401(k) to receive any offered employer match amount, examine the plan’s investment specifics and any fees. If you feel the plan is nickel and diming you, you can put additional retirement contributions into an individual retirement account (IRA).
A Roth IRA deducts taxes from your contributions now, but that means your money grows tax-free (i.e. you aren’t taxed on withdrawals in retirement). Contributing to both a 401(k) and a Roth IRA is a tax diversification approach to retirement investing. If you want to make pre-tax contributions (allowing your money to grow faster off an initially larger contribution amount), you can choose a traditional IRA.
IRAs allow you to contribute only $6,000 (in 2020). If you reach this amount in the year, go back and contribute to your 401(k) until you hit its ceiling or max out your budget for savings.
Some companies offer a Roth version of the 401(k) that can be the best of both worlds if the plan fees are low enough.
Take on risk
At 30, you still have a long time-horizon before retirement, which means you don’t have to worry about short-term volatility in the market. You can accept risks that traditionally lead to higher returns in the long term. This means being able to set your risk tolerance a little higher on investment portfolios and retirement plans.
After your emergency fund of at least three months of expenses is established, some investment advisors recommend investing 70% to 80% of your long-term savings in stocks and mutual funds.
Go for inexpensive diversification
Something else, besides time, that helps you take on added risk is investment diversification. This can mean spreading a certain percentage of your investable money between index and exchange-traded funds, international stocks and small to medium U.S. companies, and bonds. As always, look for funds with the lowest fees possible—less than 0.50%, if you can.
Choosing the perfect balance for your investments can be done by you (if you feel you have the know-how), by a professional (if the fees are right), or by a robo-advisor. The latter uses a computer algorithm to create and manage your portfolio for a small annual fee.
Diversify your savings
Your emergency fund should sit in an easily accessible savings account. It probably won’t earn you much in interest, but you can get to it whenever you need to without penalty. Beyond this, look to put additional savings in money market accounts or CDs/share certificates. These options will earn you more interest on money you can wait to access.
Invest in other life goals
While retirement is a very important long-term goal, it shouldn’t be the only one you have your eye on. Saving and investing for other things is important too, like college or private education for your kids, vacations, a down payment for a house, starting your own business or switching careers, and philanthropic pursuits. Prioritize these goals so you’re confident about what to do with a raise, an inheritance or windfall, and changing expenses. The money that used to go toward paying off a car loan could now go toward your down payment savings.
Your 30s are a perfect time to reassess or start an investing strategy. The rules are slightly different than they were in your 20s, but that doesn’t mean long-term wealth and financial stability are out of reach.