Your 30s are a critical decade as an investor. If you already started investing in your 20s, then now is the time to build on that momentum and see where you can improve. And if you didn’t, then you should definitely find a quality stock broker and start ASAP to get yourself on track for retirement.
Tori Dunlap, the founder of Her First $100K, is known for her personal finance and investing advice. Since much of her audience is people in their 30s, she has shared several great pearls of wisdom for investing during this decade of your life. Here are the best tips from an investing guide she posted on her blog.
1. Use tax-advantaged retirement accounts
When you invest your money, start by investing with tax-advantaged retirement accounts. Here are a few of the most popular options:
- Individual retirement accounts (IRAs): You can open this type of account with a stock broker, and then deposit money and invest it. Your contributions are tax-deductible, so they help you lower your tax bill the year you make them.
- Roth IRAs: These work the same way as traditional IRAs, with one key difference. Your Roth IRA contributions aren’t tax-deductible, but your withdrawals in retirement are tax-free.
- 401(k)s: An employer-sponsored retirement plan where contributions are taken directly out of your paycheck. Like with IRAs, contributions are tax-deductible. Many employers also offer a 401(k) match, meaning they match your contributions up to a certain amount.
These all have annual contribution limits and withdrawal rules, most notably that you can’t make penalty-free withdrawals until age 59 1/2. It’s recommended that you prioritize investing through these types of accounts to save on taxes.
2. Make a consistent and sustainable investing schedule
Dunlap says that the most important part of investing is getting started, but investing consistently is a close second. To have the best results as an investor, it needs to be a long-term financial habit.
The most effective way to do this is by making an investing schedule. For example, you could invest $500 every two weeks, or $1,000 per month. Set a reminder in your calendar so you don’t forget, or you could even set up automatic investments for the frequency you want.
3. Experiment with different investments
One less common piece of advice from Dunlap is to experiment with investments. For example, you could consider splitting your money among multiple exchange-traded funds (ETFs) that cover different market sectors. Maybe you build a portfolio with one ETF following large cap stocks, one that focuses on energy companies, another in health care, and so on.
This doesn’t mean you should constantly bounce from investment to investment. It’s good to have some reliable investments you can make on a regular basis, such as an S&P 500 fund. But you could find out what works for you, and potentially boost your returns, if you’re not afraid to branch out.
4. Increase the percentage of your income you invest
Over long periods of time, every extra dollar makes a difference. By increasing the amount you invest, your portfolio will grow much faster.
If you can afford it, try increasing your investing contributions by 1% of your income. Dunlap recommends investing from 6% to 15% of your pre-tax income, but that’s not a must. If you can’t quite invest that much, do what you can. Or if you can do more, go for it.
5. Track your progress and make adjustments as needed
Every three months or so, review your portfolio to see how each investment is performing. Ask yourself if there are any new types of investments you’d like to add. And if there are investments that no longer fit your goals, consider if it’s worth selling them so you can put that money into something different.
To clarify, don’t micromanage your portfolio or make rash decisions. Just because the stock market hits a rough patch doesn’t mean you should sell everything. In fact, this is often the worst time to sell your stocks. But it’s important to do the occasional review and see if there are any improvements to make.
Many investors do very well in their 30s. Income tends to rise with age, which means you may have far more spare cash than you did in your 20s. Follow Dunlap’s tips and you could turn that money into a sizable portfolio in the years to come.
Looking for wealth planning designed to meet your financial goals? Talk with a wealth management expert at Byline Bank today.
This article was written by Lyle Daly from The Motley Fool and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to [email protected].
