Investing by Age Series: Investing in your 30s
Asset and wealth acquisition in your 30s is often regarded as a daunting task. At this age, you have probably come across opinions that you should have invested early in your 20s. However, you’re not alone as a recent study conducted by Gallup showed that approximately 28% of Americans don’t start investing until they’re 30 years old. Creating an investment plan during this age is important as it will help you have better bearings and plans for your future. Whether you’re interested in getting a head start on retirement or you just want to increase personal wealth then investing during your thirties is a great financial decision.
Most people in this age gap are more established in their careers and have sufficient salaries with surpluses that can be redirected towards investing. However, you should not be discouraged if you are not yet settled in your career as you have a long way to go and many opportunities to still invest. The most important thing to consider is that you should never beat yourself for investing late. It is better to start at this age than to never have a plan for your future.
The Big Picture
Before you begin investing, you need to have a clear understanding of what you desire and how you will achieve it. Let’s assume you have a high-level vision of a successful investment plan where you want to be able to retire in 30 years and have enough investments to leave off. You might think that investing in high returns is the best option since you assume that you do not have enough time. However, you are more likely to end up with lower returns or burn your principal investment when you choose such get-rich schemes. The investment options provided in this article take into consideration all income ranges and some investment profiles that you might be interested in.
How did we get Here?
How did we get here? This is a question that we all ask ourselves at one point in life. Many people are often discouraged that they did not begin investing during the early stages of life. However, having such a mindset will most definitely contribute to your failure rather than success. It is important to note that we each have different paths in life and we also have different aspirations and access to information. Basic educational curriculum does not teach financial literacy and this may contribute to us not having enough knowledge to know what options we have regarding our incomes and financial positions.
For most people investing in your 30s may have been because of a combination of events including:
- Not having timely access to financial education
- Not having an idea about what you wanted to do after high school
- Unexpected life events that may have complicated your career and financial growth
- Positive life events such as marriage or children that may have hindered your ability to save.
Regardless of the reasons that may have hindered you from saving in your 20s you should know that you still have the opportunity and chance to create a viable and sturdy financial plan that will help you retire without any constraints.
How do I Build Wealth in my 30s?
The most difficult part about investing in your 30s is that you have to balance life events to make sure that you have sufficient funds to invest. Most people are often married or engaged in their thirties with big expenses including wedding costs, having children, and taking care of a family. Such events are all positive and may complicated decisions to begin investing. However, you can overcome these constraints by creating a good plan and sticking to it. You need to create a financial balance that takes into consideration all your expenses and your future savings plan. These balances may come with some compromises as you have to balance income against expenses and adjust your vision from near-term goals to longer ones.
This means that if you have a family your investment goals may largely be founded on creating an education plan or saving towards your children’s future. However, if you do not have children you can customize your investment plan to include both your retirement options and future family plans. This should not restrict you as with discipline and commitment, you can create an investment plan whether you have children or not. Not everyone has access to financial advisors as they can come with a pretty high cost. As such, these options provide viable ways based on tested and proven techniques that will help you create a more viable investment plan.
Understanding your goals & being real with yourself
For most people in their 30s the main goal is to contribute the maximum contributions for a 403b 401k and IRA. You must keep records of everything and know where everything resides and what you have. Using what can otherwise be saved up for your future only in the planning of holidays and weddings is detrimental to your financial wellbeing. Instead, you should endeavor to use leftover money, from investment and savings, for life events like holidays and marriages. If you don’t already have a budgeting or financial plan in place, you can read our article on HOW TO TRACK EXPENSES IN 4 EASY STEPS AND NEVER FAIL AT BUDGETING AGAIN.
Racking up credit card debt
If you owe tens of thousands in card loans and get charges from your credit card they can take a long time to pay back the balance of the card. Consider, for example, that owing $30,000 at a 20% interest rate means you’re paying more in interest yearly alone. Avoid getting so much debt, even if that means the debts have been transferred to mortgages or car loans and interest rates are relatively low. If you owe credit card debt there is a good chance that you can succeed in recovering this. – If your owing too much then repay immediately.
Seek inexpensive diversification
The key to having a good and profitable portfolio is through diversification. The vast list of securities of the Index Funds makes you fairly more varied. If you want more diversification you can put together several funds that expose you to companies from small to international. A robo-advisor which uses a computer algorithm to grow and manage a small annual fee is a good option at that stage. Your overall portfolio will benefit from diversification by being less volatile which means you will worry less than if you invested in one company.
Investment Allocation in your 30s
Growth stocks & dividend stocks
Growth stocks are shares in businesses that have shown above average earnings and have a potential to grow faster than the economy. These kinds of stocks are considered volatile because they generally increase in price faster than other stocks. Some of the characteristics of growth stocks that make them viable investment options in your thirties include their high price to earnings ratio and high-earning growth records. However, it is important to consider that they are considered more volatile than the broader market which makes them a riskier investment. So how do you make money from growth stocks? These kinds of stocks do not pay dividends. As such investors rely on the possibility of increase in the value of stock which will provide you the opportunity of selling them at a higher price than you initially purchased them.
Dividend stocks are shares from well-established companies that have a track record of paying dividend earnings to the shareholders. This kind of stocks provide regular dividends which are often used to either add value to your portfolio or provide you with periodic and sustainable income. There are different kinds of dividend stocks depending on the frequency at which the dividends are paid. For instance, there are some companies that pay monthly dividends and the others that pay quarterly dividends. If you choose this type of stock then it is advisable to always reinvest your dividends and increase the value of your stock so that you can get higher returns in the future.
If you are creating a financial investment portfolio then growth stocks and dividend stocks are important assets that can help you create a viable investment plan. It is advised that your portfolio should have at least 70% of this type of stocks as you will be able to maximize your investment and generate interest. This high recommended percentage takes into account that you still have the opportunity to afford some risk that comes with such investment.
Real Estate Acquisition (Buying a house)
Buying a house is often considered a mandatory rite of passage in capitalistic societies. However, it is important to note that this investment is not always right for everyone as it depends on a number of factors. Let’s say you live in a higher-living standard city where utilities and bills are quite expensive. Buying a house in such cities is not a wise financial option as it will only add up to your expenses. On the other hand, if you are living in an average-standard of living city then you might find the cost of maintaining a house more affordable thus making it the right investment plan for you.
When deciding if this is the right choice for you, you should always consider the market and prices because it is financially advantageous to buy a house rather than rent when market prices are reasonable. Houses are often considered incremental assets as their price characteristically increases with years. However, some events in your neighborhood such as increasing crime rates or deteriorating living standards may reduce the value of your house making it a burden rather than an investment. When choosing to buy a house always select a neighborhood that has a high growth potential which will help you maximize the appreciation value of your home. This will also contribute to your ability to obtain fixed-rate mortgages that come with substantial down payments thereby avoiding other high and expensive payment plans.
How do you know if an area is considered a high growth potential neighborhood? Take this assumption, let’s say you’re looking to buy a house and come across a relatively average costing settlement with an upcoming university or hospital. It is logical to assume that these new establishments may increase demand for housing which will contribute to the increase in the value of your house. Always ask your realtor about the growth potential of the neighborhood before investing in it.
Purchase a Rental Property
Rental income has always been acknowledged as a viable form of investment because it provides regular and passive income. The key to becoming more financially-independent and being able to sustain a relatively peaceful home is to have passive income. Think of it this way, if you are in employment you always have to work because of the regular payments that you receive either weekly, bi-weekly or monthly. This is passive income that is geared towards sustaining your lifestyle. While this sounds like an easy way to secure your future you need to understand the risks associated with rental income. Most countries and cities have laws that protect landlords and tenants. Sometimes these laws may act in your favor or in that of your tenant.
For instance, let’s say you decide to evict a tenant who hasn’t been paying rent or has become belligerent towards you and your family members. During the eviction the tenant destroys your house making it inhabitable. You might decide to sue this tenant to partially recover the costs associated with renovating your rental. However, the associated costs of such cases coupled with the probability that the judgment may not be in your favor will leave you in more debt than you initially had. This can further complicate your career and make it more difficult for you and your family. As such it is important to consider all the risks associated with buying rental houses before you decide on this investment venture. The key to being financially independent is to always know the risks associated with investment and to understand that you can never gain without having risk.
Tax-advantaged accounts are those that are designed to help you invest in your retirement by making periodic contributions that are exempt from taxes. You might have heard of the 401 (k) which will help you create a retirement fund. If you are employed then it is important to know if your company offers any structures for such retirement plans since there are companies that may match your contributions which doubles your investment. Other tax-advantaged accounts include Roth IRA that will protect you from paying taxes when you decide to cash in the earnings from your savings account. This type of investment is suitable for an individual looking to invest in their retirement.
Personal development is often an overlooked investment opportunity that can help you become more established in your career and personal life. In the past few decades there has been an explosion in the number of sites offering online courses that can help you improve but your career and personal life. For instance, nowadays you can access programming courses offered by ivy league universities such as Harvard or MIT on platforms like edx. Before you invest in personal development you need to decide whether you want to improve your personal or career life. For instance let’s say you have been working in an average job with average earnings and you want to make more during your free hours. You can choose to invest in an Amazon web services certification that is provided online and is considered one of the highest paying groups of jobs in IT.
You can also choose to invest in your personal life by considering courses such as mindfulness and meditation that are aimed at making you a more peaceful and empowered individual. Other courses that can help you in your personal life include financial literacy that will help you improve your knowledge on investment and savings and help you create a more stable future. . The key to choosing the right course is deciding what you want to improve on and focussing on it.
Cryptocurrencies are considered the new buzz as they provide a new mode of paying for things. This kind of investment is considered extremely volatile as evidenced by how the cost of popular cryptocurrencies like bitcoin can rise or fall. This can be a valuable addition to your portfolio if you select one that is relatively stable and has potential. One principle that can guide you in selecting the best cryptocurrency to invest in is to always go for those that solve the problem.
For instance, the cryptocurrency Ripple (XRP) was created as a currency that helps solve the problems affiliated with updated SWIFT systems. These problems often result in inefficient payment delays, inflations, and outrageous transaction fees that are solved by allowing users to send money anywhere in the WORLD within seconds. This kind of cryptocurrency has potential as it provides a solution for a problem that has existed in the financial industry for decades.
We cannot consider investments for your thirties without talking about bonds. These are units of corporate debt that are often issued by companies and governments and securitized as tradable assets. Bonds often have lower risk than stocks which also means that they have a lower rate of return. However, this should not discourage you as the lower risk means that you have a degree of control or guarantee that you will always get a return on your investment. It is important to look at government bonds when considering this option because most of them have higher than average rate of returns and are tax exempt.
Paying Off Debt
First step to financial independence is being able to pay off debts. Think about debts like an anchor holding your ship from sailing to financial independence. No matter how much investment you have or how much you earn you will always have to pay these debts that will put you anchored in the same position for a long period. You should also know that these debts ultimately affect how you are able to access other financial implements that may help you become more financially independent as they contribute to your credit score. If you decide that you want to become financially stable in the future then you need to come up with a tally of all your debts and decide on a plan to pay them off before they become an anchor to your financial independence. You can check out our list of FREE budgeting and money-saving charts that will help you overcome your debts and create a more stable future for you and your loved ones.
Create an Emergency Fund
Emergency funds are important financial implements that can help you plan for your future. Always having an account that you can fall back on when things get tough is important particularly because incidence is like the current pandemic has shown how uncertain the world can be. Creating an emergency fund should be based on a few factors including your monthly expenditure, your medical expenditure, and a nest egg for your dependents. Realistically, if you are employed you should have an emergency fund that is sufficient enough to help you give at least six months if you become unemployed. This means that you can have enough time to look for a job without having to worry about paying rent or feeding yourself and your family when you have such an account. This is also an important way of protecting your assets. This is because most people often think of disposing of their assets when they hit hard times. While this might provide you with money to sustain you for a period it may contribute to your financial destruction.
Think of it this way, let’s say you have a rental house and then you suddenly become unemployed. The rental income is not enough for you and your family to live on. As such, you might think it is a good idea to sell the house and get enough money to sustain you while you look for another job. This is a wrong move as you may take longer to get a job or have more challenges in accessing a job that pays as much as your previous one. If you are in such a position having an emergency fund will prevent you from selling your house as you come up with ways through which you will be able to get more income. One way you can survive this is by downgrading and fitting your lifestyle to your new reality. Always remember that assets are there to protect your financial independence and not destroy it. As such, all of your moves should be geared towards protecting them.
Investing in Insurance
Insurance coverages were created to protect you from the unexpected. As such, it is important to view them as investments that can guarantee a more stable future. Always make sure that you have fundamental insurance coverages including healthcare which has been identified as one of the costs that contribute to financial destruction. If you live in an area where you cannot access free health care from hospital having insurance will ensure that you do not have to pay out-of-pocket costs when you or your dependent become sick. Unexpected healthcare challenges such as cancer may put a significant dent in your financial independence as you will have to struggle to pay for regular pharmacotherapy sessions. Having good medical insurance would ensure that you are able to access your healthcare needs while simultaneously protecting you and your loved ones from incurring the cost associated with your care. You should also research other insurance covers that protect you from unexpected costs.
Increase your retirement savings
Start your retirement planning right away to feel less of a pressure when you’re older. You can raise your retirement savings to 15% from current income. Not everyone in his 30 years will afford to put out this much but if you can do this consider modifying your 401(k) contribution. Increasing your contributions in a 401k can boost your retirement savings. The normal in-house savings account gets a nice tax exemption as mentioned above, but savers with a longer income could opt for tax-free growth with a Roth IRA. Just be aware of yearly contributions limits.
A fully diversified portfolio could comprise a few broadly diversified indices. It makes sense to think of bringing in additional sector funds. Some sectors of the economic system focus in one way or another on technology services and/or service provision. When investors are focusing on the sectors they’re investing should never put too much focus in one. Invest in two to 3 sector funds & then make about 5% of your portfolio in it. With investments of $1000 or more, use index funds for diversification.
What accounts should I invest in?
When you get older you should put the greatest value on saving for retirement. This order consists of what accounts to allocate to use in the order of the best – get as many tax-deferrals as possible. It is optimum to save for retirement with an invest in retirement accounts.
The final word
Financial independence is a goal that everyone aspires to achieve regardless of age. While some may have been lucky to have begun investing at a younger age it is important to note that you can still get financial independence regardless of how late you begin investing. You should not allow myths about investment and age stop you from achieving financial independence since you are still very capable of generating passive and viable income regardless of your age. The investments included in this list take into account the risk and returns that you might be looking for when you start investing in your 30s. This, do not buy any means, represent the entirety of available investment opportunities as there are a plethora of opportunities that are available for you. Always make sure that you do your research before you decide on the financial implements that you will include in your portfolio. It is also important to remember that diversity in a portfolio is equated to better and stable returns as you are able to spread the risk across different opportunities.
Being smart when it comes to your finances will lead to a lot of extra wealth in your 30s. There are other ways to maintain financial security. So for example adjusting to growing assets of yours you can protect yourself against everything from natural disasters to life-threatening conditions. As tax obligations grow more complex, get in touch with an accountant to help you with short- and long-term tax planning or obtain life insurance.