Investing in your 30s is really when you start to see your money grow and set the stage for bigger gains later in life
Investing in your 30s is about learning how to balance financial risks with your long-term financial goals. The best investments for your 30s are still pretty similar to the investments for 20-somethings but with two important changes.
Investing in your 30s is when you start thinking about how your financial risk can affect your life. You’ll have enough stresses around starting a family and working your way up the job ladder without life being complicated by investment risk. Fortunately, investing in your 30s also means having a little more to put towards your investments and really starting to see your money grow.
This post is the third in our best investments by age series. We started it off with a general view of investing by age in this great infographic that brings it all together. We looked at the investing rules behind investing by age and how to get started investing by asset classes in your 20s.
How Investing in Your 30s Changes
As an invincible 20-something, stocks were the way to go when it came to picking the best investments and asset classes. As you approach the third decade of your life, you start to complicate things with…life.
Everyone is different but for most, your 30s means starting a family and putting plans behind what you want the rest of your life to look like. That can mean a lot more stress, especially when that first baby comes and you wonder if you’re ready.
You may still have the ability to tolerate big changes in your investments. You’ve still got at least a couple of decades to retirement and your income is growing steadily.
The problem is that your willingness to tolerate risk is decreasing. You’ve got enough to worry about in life without having to worry about a stock market crash as well. This change to your risk tolerance means pulling back on your financial risk a little as you progress through your 30s.
It was in my 30s that I learned the power of diversification and why I don’t need to worry about a stock market crash.
I’ve copied our Investing in your 30s example allocation below.
Unless you have a unique situation, investing in your 30s is still going to look a lot like it did in your 20s but with the beginnings of scaling back on risky assets. You might pull 5% out of stocks and put it in bonds to start the decades’ long process of taking less risk in your investments.
It’s not only about taking less risk investing in your 30s. You still have a long time to retirement and can handle quite a few stock market cycles. It’s just as important though to start that slow process of taking less risk. I know investors that put it off, choosing to instead keep most of their investment in stocks. They never started the process and pretty soon they are watching stocks tumble along with their nest egg…in their 50s.
Start getting used to taking a little risk off the table in your 30s. The model portfolio allocation above still gets about a 6% annual return based on historic averages and will still put a lot of growth behind your money.
Don’t want to worry about your investments? Check out this Betterment review and learn how robo-investing automatically adjusts your investments as you age.
Investing More in Your 30s
Perhaps the biggest change to investing in your 30s is the fact that you should start investing more each month. Your paycheck is starting to grow and that should mean the money you put away for savings grows as well.
Remember that investing is just as much a savings account as it is about making your money grow. At the average market return, the money you put into your account will be larger than the total money earned in your investments for at least 20 years.
Unfortunately for most, it’s all too easy to see expenses grow as fast or faster than income. You were doing just find budgeting on $35,0000 a year in your 20s, why are you barely scraping by on $45,000 annually in your 30s. It sucks cutting back on the immediate pleasures but the money you invest now has a real chance at becoming so much more later in life.
You’ll notice that we didn’t talk much about specific stocks or bonds. Is it a little odd for a post titled, Best Investments for Your 30s, to not talk about best picks in stocks?
Wrap up the Investing by Age Series with Retirement Investing in Your 60s and Beyond
We saw in our prior post that the best investments are really those you make in the larger asset class rather than picking individual stocks. Investing in your 30s, as it is with investing in general, is more about your larger financial goals and portfolio risk than it is about picking stock winners. See the bigger picture in your investments and you won’t have to worry about picking stocks.