What 30-Somethings Should Know About Investing
Published in: Personal Finance
Theoretically, it’s never too late to start investing, but practically speaking, the sooner you invest, the more time your money has to grow and the bigger your nest egg will become.
Use Retirement Plans
If your job has an employer-sponsored retirement plan, like a 401K or 403B, especially if the employer offers a match to your contributions, take advantage of it. “That match is what we call ‘free money,’” says Jennifer Stice, Managing Director of the Trust and Investment Department for Town and Country Bank in Springfield. Typically, you’ll save money on these plans because employers often pay the fees for them.
If your job doesn’t offer this, set up an Individual Retirement Account (IRA) through a financial institution or broker. Some accept investments as little as $25. “A little bit over time can snowball and be worth a lot later,” Stice says. Saving for retirement is up to you. “The days of employers providing pensions (employer-funded retirement plans) are mostly gone.”
Pay Off Debt
If you’re struggling to pay off college loans, a mortgage, or a combination of debts, in general it’s best to pay them off before investing. You’ll save money on interest and free up income. The exception is if your employer matches employee contributions to a retirement plan, Stice says. “Try to put in even a little bit of money to get the employer’s match so you don’t lose that free money.”
It helps to pay off small debts first. That’s a motivation to pay off bigger ones. And don’t forget that some debts provide tax benefits; mortgage and student loan payments are tax deductible, for example.
If you’ve paid off your debt, are already investing, and have a family, start saving for college for your kids. There are special investment programs for that, some are state-sponsored.
Invest by Percent
Most experts recommend investing a percentage of your income, instead of an amount. The reason is by investing a percentage, you’re sure to increase your contributions as your salary improves. Most advise investing between ten to fifteen percent.
Apps Can Help
Make your phone invest for you. The Acorns app rounds up your credit card or debit purchases and invests the difference in ETFs (exchange traded funds). Stash helps you learn about and begin investing, while Vault opens an IRA and invests a percentage of your pay.
Do the Math
According to bankrate.com, in early 2019, thirtysomethings had an average of $42,400 in a 401K. To determine how much you’ll need for a comfortable retirement, check an online calculator, like this one.
Just Do It
“Don’t be intimidated when you’re starting to invest,” Stice says. “Start somewhere. There’s a lot of really good, low-cost options, particularly mutual funds, ETFs, or index funds that provide a lot of diversification, which means spreading your money around to maximize its potential and security.”
Search online for investing advice or talk to an investment advisor at a financial institution or a financial planner. The key is to invest as soon as you’re able, even if you’re investing small amounts, and keep at it.