Turning 30 marks the start of a new chapter in life and it can bring a shift in the way you approach your finances. Investing in your 30s can look very different from the way you invest in your 20s or 40s, based on your goals, strategies, and needs.
At this stage in life you may be working on paying off the last of your student loan debt while focusing more on saving. Your financial priorities may revolve around buying a home and starting a family. At the same time, you may be hoping to add (or increase the amount that you’re) investing for retirement into the mix as you approach your peak earning years.
Finding ways to make these goals and needs fit together is what financial planning in your 30s is all about. Knowing how to invest your money as a 30-something can help you start building wealth for the decades still to come.
5 Tips for Investing in Your 30s
1. Define Your Investment Goals
Having clear financial goals in your 30s or at any age matters. Your goals are your end points, the destination that you’re traveling toward on your financial roadmap.
So as you consider how to invest in your 30s, think about the end result you’re hoping to achieve. Focus on goals that are specific, easy to measure and best of all, actionable.
For example, your goals for investing as a 30-something may include:
• Contributing 10% of your income to your 401(k) each year
• Maxing out annual contributions to an Individual Retirement Account
• Saving three times your salary for retirement by age 40
• Achieving a net worth of two times your annual salary by age 40
These goals work because you can define them using real numbers. So, say for example, you make $50,000 a year. To meet each of these goals, you’d need to:
• Contribute $5,000 to your 401(k)
• Save $6,000 in an IRA
• Have $150,000 in retirement savings by age 40
• Grow your net worth to $100,000 by age 40
Setting goals this way may require you to be a little more aggressive in your financial approach. But having hard numbers to work with can help you motivate you forward.
2. Don’t Be Afraid of Risk
If there’s one important rule to remember about investing in your 30s, it’s that time is on your side.
When retirement is still several decades away, you have time to recover from the inevitable bouts of market volatility that you’re likely to experience. The market moves in cycles; sometimes it’s up, others it’s down. But the longer you have to invest, the more risk you can generally afford to take.
The best investments for 30 somethings are the ones that allow you to achieve your goals while taking on a level of risk with which you feel comfortable. That being said, here’s another investing rule to remember: the greater the investment risk, the greater the potential rewards.
Stocks, for example, are riskier than bonds but between the two, stocks are likely to produce better returns over time. If you’re not sure how to choose your first stock, you may have heard that it’s easiest to buy what you know. But there’s more to choosing stocks than just that. When comparing the best stocks to buy in your 30s, think about things like:
• How profitable a particular company is and its overall financial health
• Whether you want to invest in a stock for capital appreciation (i.e. growth) or income (i.e. dividends)
• How much you’ll need to invest in a particular stock
• Whether you’re interested in short-term trading or using a buy-and-hold strategy
Past history isn’t an indicator of future performance, so don’t focus on returns alone when choosing stocks. Instead, consider what you want to get from your investments and how each type of investment can help you achieve that.
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3. Diversify, Diversify, Diversify
Investing in your 30s can mean taking risk but you don’t necessarily need or want to have 100% of your portfolio committed to just a handful of stocks. A diversified portfolio with multiple investments can spread out the risk associated with each investment.
So why does portfolio diversification matter? It’s simple. A portfolio that’s diversified is better able to balance risk. Say, for example, you have 80% of your investments dedicated to stocks and the remaining 20% split between bonds and cash. If stocks experience increased volatility, your lower risk investments could help smooth out losses.
Or say you want to allocate 90% of your portfolio to stocks. Rather than investing in just a few stocks, you can spread out risk by investing and picking one or more low-cost ETFs instead.
Exchange-traded funds are similar to mutual funds, but they trade on an exchange like a stock. That means you get the benefit of liquidity and flexibility of a stock along with the exposure to a diversified collection of different assets. Your diversified portfolio might include an index ETF, for example, that tracks the performance of the S&P 500, an ETF that’s focused on growth stocks, a couple of bond ETFs and some individual stocks.
Recommended: ETFs vs Mutual Funds: A Further Look
This type of strategy allows you to be aggressive with your investments in your 30s without putting all of your eggs in one basket, so to speak. That can help with growing wealth without inviting more risk into your portfolio than you’re prepared to handle.
4. Leverage Tax-Advantaged and Taxable Accounts
Asset allocation, or what you decide to invest in, matters for building a diversified portfolio. But asset location is just as important.
Asset location refers to where you keep your investments. This includes tax-advantaged accounts and taxable accounts. Tax-advantaged accounts offer tax benefits to investors, such as tax-deferred growth and/or deductions for contributions. Examples of tax-advantaged accounts include:
• Workplace retirement plans, such as a 401(k)
• Traditional and Roth IRAs
• IRA CDs
• Health Savings Accounts (HSAs)
• Flexible Spending Accounts (FSAs)
• 529 College Savings Accounts
If you’re interested in investing for retirement in your 30s, your workplace plan might be the best place to start. You can defer money from your paychecks into your retirement account and may benefit from an employer-matching contribution if your company offers one. That’s free money to help you build wealth for the future.
You could also open an IRA to supplement your 401(k) or in place of one if you don’t have a plan at work. Traditional IRAs can offer a deduction for contributions while Roth IRAs allow for tax-free distributions in retirement. When opening an IRA, think about whether getting a tax break now versus in retirement would be more valuable to you.
If you’re not earning a lot in your 30s but expect to be in a higher tax bracket when you retire, then a Roth IRA could make sense. But if you’re earning more now, then you may prefer the option to deduct what you save in a traditional IRA.
Don’t count out taxable accounts either for investing in your 30s. With a taxable brokerage account, you don’t get any tax breaks. And you’ll owe capital gains tax on any investments you sell at a profit. But taxable accounts can offer access to investments you might not have in a 401(k) or IRA, such as individual stocks, cryptocurrency or the ability to trade fractional shares.
5. Prioritize Other Financial Goals
Retirement is one of the most important financial goals to think about in your 30s but planning for it doesn’t have to sideline your other goals. Financial planning in your 30s should be more comprehensive than that, factoring in things like:
• Buying a home
• Marriage and children
• Saving for emergencies
• Saving for short-term goals
• Paying off debt
As you build out your financial plan, consider how you want to prioritize each of your goals. After all, you only have so much income to spread across your goals, so think about which ones need to be funded first.
That might mean creating a comfortable emergency fund, then working on shorter-term goals while also setting aside money for a down payment on a home and contributing to your 401(k). If you’re still paying off student loans or other debts, that may take priority over something like saving for college if you already have children.
Looking at the bigger financial picture can help with balancing investing alongside your other goals.
Your 30s are a great time to start investing and it’s important to remember that it doesn’t have to be complicated or overwhelming. Taking even small steps toward getting your money in order can help improve your financial security, both now and in the future.
An easy way to start investing is by opening an account on the SoFi Invest® brokerage platform, you can add individual stocks and ETFs to your portfolio, test the waters with cryptocurrency or invest in small amounts with fractional shares. The sooner you get started investing in your 30s, the more time you’ll have to mold and perfect your financial plan.
Photo credit: iStock/katleho Seisa
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Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at [email protected] Please read the prospectus carefully prior to investing. Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.