How to Invest in Your 30s
What Is Investing?
Now you’re in your 30s, you might feel like you’ve missed the boat with investing, but that’s not the case. There is an old Chinese proverb that fits perfectly here: “The best time to plant a tree was twenty years ago. The second-best time is now.”
You might have missed some opportunities to invest in your 20s, but there are plenty of ways you can catch up in your 30s.
Investing can take many forms. As it requires a long-term commitment, choose the option that feels interesting and manageable and that carries a risk that you think is acceptable.
Remember that all investment comes with risk, so don’t let that put you off altogether. Weigh up the options, take advice where necessary and make a decision that’s right for you.
Some examples of investments include before- or after-tax investing, investing in start-ups, stocks and bonds, real estate or buying and selling commodities, like precious metals.
Why Should You Invest in Your 30s?
The ultimate aim of investing in your 30s is to build a nest egg that will see you through retirement and increase your overall personal wealth.
By the time you reach your 30s, you are probably established in a professional role, have paid off your student loan and can comfortably put money aside for investments. With many decades of work ahead of you, you still have plenty of time to build up your investment portfolio and benefit from compound interest.
Compound interest allows your investments to grow over time, beyond the amount of money you put in. Your investments make money, which is then reinvested to make more money, and so on and so on.
The snowball effect means that it grows over time, increases your capital and results in a better return on your money.
How to Invest in Your 30s
Investment is a long game. It’s not about short-term payoffs but about reaching long-term financial goals that will see you comfortably into retirement.
The way you approach investing in your 30s depends on whether you already have investments or are starting from scratch.
If You Already Have Investments
If you already have investments by your 30s, you’re off to a great start. There are ways you can strategically build upon existing investments or take new opportunities to increase your capital further and spread the risk.
Increase Your Savings
Saving a pot of cash is not necessarily recommended as your only method of investment, as it doesn’t keep up with inflation, and your money isn’t working hard enough to generate a return on investment.
However, if you already have other investments, it can be reassuring to have a safety net of money if you ever have an emergency or lose your job.
It is generally recommended that you have enough savings to live off for six months or so, then any capital above this amount can be invested.
Consolidate Your Investments
If you’ve already dabbled in investing, you might have multiple investments spread out in different places. While that’s not a bad thing in itself, it can help to streamline investments and place funds in areas that perform well and generate better returns on investment.
Over time, revisit your investments to see what’s working and what isn’t, moving money around accordingly.
Diversify Your Portfolio
It’s never a good idea to put all your eggs in one basket when it comes to investing. If you’re ready to take things to the next level now you’re in your 30s, think about adding in other types of investments to diversify your portfolio.
Spreading the risk across multiple investments also protects you from severe losses if one investment goes wrong.
Maximize Your Retirement Accounts
Many employers will match your contributions into your 401(k). If you opt to pay in more now, employer contributions increase your investment, and you’ll reap the rewards when you retire.
The Roth individual retirement account, or IRA, is a good way of saving additional money on top of your 401(k) or as an alternative if you don’t have a 401(k). Tax benefits of the Roth IRA mean you won’t be liable for tax payments when you withdraw funds after you retire.
Get a Financial Advisor
You might have managed your own investments thus far, but one way to step up your investment is by consulting a financial advisor. Input from a professional can get your money working harder, and you’ll usually find that the extra profit more than covers the financial advisor’s fee.
Plan for the Unexpected
Investing your money has obvious long-term benefits, but if you’ve already made a start on building up an investment portfolio, perhaps you can afford to put some money aside as a buffer.
Your 30s can throw up expensive life events – buying a home, getting married and having a baby are all significant (expensive) events that typically happen in your 30s. Planning for these life events means that when they arise, you won’t be set back in your investment goals.
Secure Your Wealth
As you reach your 30s, you probably feel a little more stable in your career and are hopefully starting to earn good money from your salary and existing investments. Now is the right time to take measures to not only grow your wealth but to secure it by adjusting your investment plans and spreading funds across both high- and low-risk investments.
If You Want to Start Investing
Create Financial Goals
If you are clear on your goals, you can find ways to get there. Take the time to work out what outcome you’d like from your investments and what you’re aiming for financially. You might want to build wealth or create a solid retirement plan, but either way, get clear on the numbers involved so you can figure out how to get there.
Open a Retirement Plan
Retirement plans have the significant advantage that your contributions and interest earned are exempt from tax. Many employers match your contributions too, so if you put in as much as you can afford, they’re basically giving you free money of the same amount.
There is usually a cap on the amount they will match, so beyond this, it can be worth opening a Roth IRA plan, an alternative retirement plan that allows for tax-free saving.
Create a Savings Plan
One of the easiest ways to get your finances in order is to create a basic savings plan. Decide how much you want to save and how you plan to do so, and look around for savings accounts with generous interest rates.
Although cash savings alone are not the best way to invest, it’s sensible to have a cash buffer alongside any other higher-risk investments.
Develop Financial Discipline
By your 30s, you have hopefully paid off debts, climbed the ladder in your career and worked out how to manage cash flow. If you wish to invest, it’s essential to have a handle on your finances and have good discipline around spending and saving.
If this is an area in which you struggle, get your basic financial habits in order before risking money on investments.
Decide Where to Put Your Money
Research and investigate all the options available to you. Your decision will be influenced by how much you have to invest, what the financial markets are doing, whether you plan to manage it yourself or pay a financial advisor and the level of risk you are willing to take.
What Should You Invest in When in Your 30s?
Multiple Retirement Plans
Make the most of your employer matching your 401(k) contributions and pay in as much as you can up to the maximum allowance. It’s also wise to invest in an IRA.
With traditional IRAs, you make pre-tax contributions but then pay tax upon withdrawal when you retire. Roth IRAs are a better option in most cases, as although you make contributions on after-tax income, you don’t pay tax upon withdrawal.
Be aware of the cap on Roth IRAs – if you earn over $140,000 per year, you are not eligible for a Roth IRA.
Invest in Stocks or Bonds Through Index Funds or ETFs
Index funds and exchange traded funds (ETFs) both involve bundling together investments such as stocks, bonds and commodities into one asset that can be traded in financial markets.
They both tend to give good long-term return on investment, which makes them ideal options for starting to invest in your 30s when you have decades of investing ahead of you.
This option gives better returns than savings, but you might need a professional to manage them on your behalf.
Invest in Cryptocurrencies
Cryptocurrencies are still relatively new investment options, and they can fluctuate and change quickly. The benefit of investing in your 30s is that you can ride out the lows and grow your investment over time.
Investing in cryptocurrencies can be a high-risk option, but high risk means the potential for high reward, so it can be a good asset in your portfolio.
Use Robo Advisors
Robo advisors are digital financial advisory platforms that guide how to invest your money. There is little human interaction involved; instead, an algorithm takes your financial information and works out the best investment options, building and managing your portfolio and retirement plan.
Robo advisors are less expensive than human financial advisors, and they are available to investors with a small amount of capital. However, they do come with drawbacks.
As an automated service, they cannot respond to complex situations or sudden changes in a person’s financial position. If you have a large amount of capital to invest, you are arguably better off seeking help from a human who can give you a personalized service rather than a robo advisor.
Buy Your Own Home
Real estate tends to be a solid investment that actually gives you a tangible benefit – a beautiful home to raise your family. If you are renting, figure out a way of purchasing your own home so you can pay off your own mortgage instead of someone else’s.
Over time, your equity will grow, and you’ll have the option to sell up in retirement to downsize and release your money.
Invest in a REIT
A real estate investment trust, or REIT, owns or manages commercial real estate, such as shopping malls or hotels. You can invest in a REIT by becoming a shareholder and receiving dividends on profits.
Before investing in a REIT, research the industry of their tenants (hospitality, retail, etc.) to gauge how strong it is and investigate the reputation and past performance of the company that manages the REIT. This type of investment typically has high yield dividends.
Invest in Real Estate (Rental Properties)
Whereas a REIT deals with large-scale commercial property, you could also build your own real estate portfolio of residential properties. You can use leverage to put down a small deposit on a house you wish to rent out, then pay off the balance over time, using your tenant’s rent.
Be prepared for covering the costs of vacant properties and for general upkeep and maintenance. Overall, real estate can be a lucrative and relatively low-risk investment option.
If you have not started investing by your 30s, don’t panic. If you start now, you’ll still benefit from compound interest and can ride out ups and downs with longer-term goals in mind.
Once you have some cash savings and have planned for significant life events, there are plenty of options for investment that can spread out risk and make your money work hard for you. You need to take the time to explore your options, taking advice from a financial advisor if necessary.
As you build up a portfolio of investments, you can review it over time, moving your money around depending upon where you’re achieving the best returns.
WikiJob does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.