Investing in Your 30s (Rewind) (EP.128)

0:28We all need to make smart decisions with our money. but maybe you haven't heard before. So I'd love for you to check it out. And don't forget, if you're enjoying the podcast, the best way to say thank you is to leave a quick review or forward an episode to a friend. Now, let's get into this popular episode from my Investing by Age series. Welcome to the Long-Term Investor. This is the second installment of the Investing by Age series. Because people go through different financial stages at different ages, you'll likely find useful information in the episodes outside of your age bracket. If you're in your late 20s, you might find this episode on investing in your 30s to be just as important.

1:10Or if you're in your 50s, you might find aspects of investing in your 40s or investing in your 60s to be relevant. One thing is for sure, the right investment strategy to reach your goals will shift as you age. Once you reach your 30s, the looming worries of graduating, starting a career, and climbing out of the student loan debt hole probably have been replaced by more domestic concerns. According to the U.S. Census Bureau, the median age that men get married is 29, and for women, it's 28. Additionally, the National Association of Realtors reports that the median age for first-time homebuyers is 33.

1:51So if you've gotten married and or bought a home, or at least have thought about those things, you also may be thinking about kids soon, if you haven't already become a parent. That's a lot of new responsibilities and costs to think about when planning for the future. Your 30s are the time to begin building lasting wealth to meet life's growing demands. Now, I'm going to assume that you've done the things suggested in episode 57 on investing in your 20s. So with that in mind, here are six ways to focus your investing strategy. Here are six ways to focus your investing strategy as you navigate your 30s.

2:29Number one, consolidate your investments. If you started investing in multiple accounts in your 20s, your portfolio may be in disarray now. You might have collected 401k accounts with a few employers, a Roth IRA that you started right out of college and maybe some online investment accounts you've built up over time. Now is the time to consolidate those investments. Pulling them in one place makes it easier to see the role each investment plays in achieving your financial goals, and it will also help you avoid redundancies and just manage your overall risk appropriately. The natural question that might arise from this action item would be, where should I consolidate my investments?

3:11There isn't a one-size-fits-all answer to this question, but I can say that you don't want to incur costs or taxes from transferring accounts. For example, some online investment platforms will force you to liquidate your prior holdings from accounts you transfer over, regardless of the tax consequences, so you definitely want to avoid that. Some platforms might have account closure fees or transfer fees that you should also want to avoid. And if you decide to seek the help of a financial professional in order to consolidate and optimize your investments, the same rules apply. It shouldn't cost you anything to consolidate your investments with a financial advisor.

3:51Your advisor should be able to get you some rebates on any account closures related to the transfer of assets, and a responsible advisor should be very weary of realizing unnecessary taxes as they optimize your portfolio. Number two, get strategic with your debt. If you have debt, the strategies you put in place in your 30s can shape how quickly you can pay it off. There's no precise formula for getting out of debt quickly, and your financial situation is going to dictate your exact priorities. But in general, I recommend tackling your debt in this order. First, knocking out the high interest rate debt that isn't tax deductible, like credit cards or private loans.

4:34Then debt with private mortgage insurance attached. So when you make a down payment on a home and you have less than 20 % down, you often have a private mortgage or PMI payment. You want to pay that down until the point where that private mortgage insurance goes away. Then you move on to that high interest tax deductible debt, like student or business loans. Then you're going to start looking at the reasonable lower interest rate debt. So a lot of student loans will fall into this category or even mortgages. I personally am not a fan of pre-paying down the mortgage, but that's where this bucket would fall.

5:11It's critical to get as much of your debt behind you as possible at this stage in life, but you don't want to neglect to invest while paying down debt. As we covered in episode 56, the rewards of investing are enormous when you start now. I have an article on investing versus paying down debt, as well as how to prioritize student loans versus your other financial goals, both of which I'm going to link to in the show notes at thelongterminvestor.com. Number three, maximize your retirement accounts. There are so many options for retirement investing and choosing the right ones can feel daunting.

5:50In general, you should prioritize accounts with employer benefits and tax advantages before investing in the others. Now, I covered this in the episode on investing in your 20s, but I feel like it's so important that I wanted to include it on this episode as well. Here's how I generally think about the mathematically optimal order for maximizing your retirement investments. First, invest the amount to get the full match on your company retirement plan. Next, if you're eligible, contribute to a Roth IRA or deductible traditional IRA. Then invest the maximum limit on your company 401k, and you may even do this prior to the previous accounts mentioned if it's a good plan with low fees.

6:34After that, you'll look to contribute to a traditional non-deductible IRA, which offers tax-deferred compound growth, but it just doesn't get that deduction on the front end. And if it makes sense, and I say this because it definitely does not for everyone, you don't want to forget about investing your health savings account or HSA. This account offers a triple tax benefit. You get a tax deduction on the contribution, tax-free investment growth, and then tax-free withdrawals when used to pay for medical expenses. If this strategy makes sense for you, then I'd argue it's the top priority after getting your employer match.

7:15Number four, make the most of your cash. Investing while covering expenses can be somewhat of a delicate dance, especially at a stage in life where financial responsibilities seem to be multiplying. The trick is figuring out how much you can put away while still having enough liquid cash on hand to meet your immediate needs. I'm personally not a huge fan of keeping more than a full month of expenses in a primary checking account, mostly because those accounts don't earn that much. If you have very predictable income, I'd even suggest that a cash cushion of between, say, 25 % and 50 % of a month's expenses is plenty to cover fluctuations while minimizing the amount of money earning little to no interest.

8:01People with irregular income and or expenses, however, may need to put more than a full month in their primary checking. Most financial planners are also going to be recommending an emergency savings account of at least three months expenses. It's best to keep this emergency fund in an online savings account separate from your primary checking so that you earn a higher rate of interest and make it slightly harder to tap those funds for non-emergency purposes. And as for your portfolio, holding too much of your assets in cash makes it difficult to stay ahead of inflation and generate sufficient returns to meet your retirement and other long-term goals.

8:40So try to keep your cash in your portfolio at a minimum. Number five, plan for the unexpected. Over the course of your life, you and your family are bound to face some unplanned and potentially unpleasant moments. Some of these can be financially crippling if you're unprepared. It starts with proper insurance coverage. Nearly everyone with a spouse, partner, or child needs life insurance. On this front, you're far better off getting term life insurance rather than a permanent or whole life insurance policy. You'll also need some form of disability insurance to protect you from an accident or illness that takes away your ability to work.

9:24The Social Security Administration actually reports that young workers have more than a one in four chance of becoming disabled for 12 months or longer before they retire. So this is an often overlooked part of your plan. Most people end up getting life insurance, but the odds that you die before age 65 are far lower than the odds that you become disabled before age 65. So this is a really important part of your plan. The final step in preparing for the unexpected is developing an estate plan to protect you, your family, and your stuff. And if you have minor children, an estate plan is important beyond monetary reasons because it allows you to name the kid's guardian in the event of your death.

10:09Otherwise, the decision is up to the state. For all these items, I'll link to related articles in the show notes at thelongterminvestor.com if you want to learn more. Number six, get assistance. Many financial advisors have tools and processes to help improve your investment and financial planning outcomes. Research from Vanguard estimates that financial advisors can add roughly 3 % in relative return for an individual investor. I'll link to that study in the show notes, but you can also check out episode 24, which is titled, Do It Yourself or Hire an Advisor. A lot of people wanna know, when is it the right time to hire an advisor?

10:50I generally feel the cost of a human advisor becomes cost efficient once you have, say,$500 ,000 across your various investment accounts. But if you aren't quite there, using a robo-advisor or a hybrid advisor ought to be sufficient. And there's a useful graphic from my book that has information about these different types of advisors that I will be sure to include in the show notes as well. When you're at the point of hiring a human advisor, it's important to choose someone that doesn't simply offer investment advice. Instead, you want someone that provides comprehensive wealth management so that you can get your entire financial house in order and keep it that way forever.

11:32That means proactively assisting in optimizing your savings plan, developing an estate plan, implementing tax saving strategies, analyzing insurance, entitlement strategies, and more. Perhaps most important of all, hiring a comprehensive wealth manager frees you up to do the things you love most in life and alleviates any of the stress that can come from managing your financial matters. The financial decisions you make in your 30s are going to impact you for the rest of your life. With these strategies, you can plan for a successful retirement long before you near the end of your career. Thanks as always for listening.

12:11Our next episode will look at investing in your 40s. But until then, to long-term investing.

12:54Thank you.