If you’re getting into your 30’s and still haven’t started investing much, you aren’t as far behind as you think. Around 61% of adults don’t start saving for retirement until their 30’s.
The promising news is that if you start saving in your early 30s, you still have roughly 30 years to build your retirement savings. If you wait longer than that until your late 30’s or 40’s, you’ll have to save much more aggressively each month to reach a comfortable amount for retirement.
If you’re reading this and you’re older than 35, you can still save enough to retire but you want to start immediately.
For anyone that’s getting started investing or deciding to dedicate more time and energy to start building their investments, there’s some basic financial boxes everyone needs to check regardless of your age.
Here are 5 investing moves to make before you’re 35:
1. Make the most of your 401(k)
If you have a 401(k), you are an investor and this is a great place to start to ensure that you are setting yourself up for success.
There are a few ways to optimize your 401(k), including reducing the fees you are paying on the account. The average American will spend $138,000 in fees which can increase your retirement age by a few years!
To reduce those fees, I recommend learning how to invest in index funds. Index funds have lower expense ratios (fees) and allow you to keep more of your money. They also often perform just as good or better than funds actively managed by money managers.
Another way to reduce fees to rollover old 401(k)’s. If you’re investing in your 30’s, you likely have at least one old 401(k). Leaving this account with your former employer will cause you to pay administrative fees that you can easily get rid of by rolling over the account. There are free services like Capitalize that will help you rollover your old 401(k)’s quickly and easily.
Learning how to make the most of your 401(k) can help you protect your 401(k), even in a recession.
2. Add a Roth IRA
A Roth IRA is an investment vehicle that you can use to grow your wealth tax free and get tax free withdrawals in retirement.
While there isn’t any tax benefit when you contribute your money, once it’s in there it grows tax free, meaning that you don’t have to pay taxes on capital gains and you won’t be taxed when you take your money out once you’re over 59 ½.
You can open a Roth IRA on your own without an employer through any bank, brokerage, mutual fund or insurance company, and you can invest your retirement money in stocks, bonds, mutual funds, exchange-traded funds and other investments.
If you make more than $153,000 (or if you’re married filing jointly $228,000) as of 2023, you can’t contribute to a Roth IRA directly at all. You can, however, use a strategy called the back door Roth that can help you get your money into a Roth IRA through another avenue.
3. Consider Investing in Low Cost Index Funds
An index in this is a group of stocks grouped by a person or organization. They were created for measuring stock market performance.
For example, S&P 500 is an index and the common thread of these stocks is its the top 500 largest traded companies in the US.
An Index fund is just a fund that tries to mirror the performance of a particular index like the S&P 500.
Index funds are often better for the average investor because they perform just as well or better than professionally managed funds and have low fees.
Since these funds are just tracking an index, they don’t require active management which means they are way cheaper to own than traditional mutual funds.
Many people in their 30’s will go straight fora financial advisor to pick their investments for them, but this could cost thousands in fees. Managing your own investments can add hundreds of thousands of dollars to your retirement.
4. Learn About Stock Market Cycles So You Can Handle More Risk
When you understand that no one can accurately predict whether the stock market will go up or down, you realize that the best way to invest is consistently over a long period of time.
Historically the stock market’s annualized return is 10% (roughly ~8% after inflation). The more you can comfortably invest in stocks knowing that the stock market will fluctuate, the more you will increase the likelihood of a strong return.
It’s also important to understand that the longer you invest, the more you decrease the likelihood of experiencing negative returns on your portfolio. The likelihood of a negative stock market return after 20 years of investing is less than 1%. If you aren’t retiring soon, you can handle more fluctuations in the market.
5. Prioritize Paying Yourself First
In your 30’s it can be hard to prioritize retirement savings, particularly if you have children, mortgages, car payments, and more. With the cost of food going up dramatically over 2022, things are getting more challenging economically.
That said, your greatest asset as an investor is time. The more time you spend in the market, the higher likelihood that the value of your investments will compound over time.
For example, if you start investing at 35, you’ll have to contribute `$750 a month (assuming an 8% interest rate) to have 1 million in your account at 65.
If you wait until you are 40 and still want to have 1 million by the time you are 65, you’ll have to contribute $1150 a month. That’s over $400 more!
You can not underestimate the power of time in the market.
Getting started as soon as possible can make you much more likely to have a comfortable retirement.
If you’re ready to get started download my free guide on 26 need-to-know investing terms.