6 crucial personal finance strategies for investors in their thirties
- Plancorp CIO Peter Lazaroff has some important advice for investors in their 30s.
- “The financial decisions you make in your 30s will impact you for the rest of your life,” he said.
- From consolidating investments to optimizing debt repayment plans, here are six strategies to consider.
Because time is money, there is a universal truth that all investors can agree on: the sooner the better, at least when it comes to investing.
Supposedly, Albert Einstein once called compound interest the most powerful force in the universe. It’s a concept applicable at any stage of your investing career, although personal investment preferences may change over time based on individual life goals.
According to Peter Lazaroff, chief investment officer of wealth management firm Plancorp, which manages $6 billion in assets, a particularly crucial stage for personal investing is in your 30s.
“Once you hit your 30s, the looming worries of getting a degree, starting a career, and getting out of the student debt hole have likely been replaced by more national concerns,” Lazaroff said in a recent episode. from The Long Term Investor Podcast, citing marriage, parenthood and the median age of a first-time home buyer at 33, according to data from the National Association of Realtors.
He continued, “Your 30s is the time to start building lasting wealth to meet the growing demands of life.”
On the podcast, Lazaroff shared six personal finance strategies specifically for investors in their 30s to consider, with the caveat that this information can be helpful even for those outside of that targeted age range.
“The financial decisions you make in your 30s will impact you for the rest of your life,” Lazaroff said. “With these strategies, you can plan for a successful retirement long before your career ends.”
6 personal finance strategies for investors in their 30s
First, Lazaroff emphasized the importance in consolidate several investmentssuch as separate 401(k) or Roth IRA accounts, on an easily accessible platform.
“Holding them together in one place makes it easier to see the role each investment plays in achieving your financial goals,” he explained. “It will also help you avoid layoffs and manage your overall risk.”
However, Lazaroff warned investors to be cautious about the potential tax consequences or closure costs that could be associated with account transfers.
Next, Lazaroff advised investors in their 30s be strategic in repaying your debts.
While he cautioned that each individual’s financial situation should dictate their exact earning priorities, Lazaroff recommended that investors generally prioritize paying off private loans or high-interest debt that is not not tax-deductible, like credit cards, then debt with private mortgage insurance, followed by high-interest but tax-deductible debt, like some form of business or student loan. Debt that is both tax-deductible and comes with a reasonably low interest rate — which Lazaroff classified as less than 4% — should be saved for last.
“Getting as much of that debt behind you as possible at this point in life is critical, but don’t neglect to invest while paying down debt,” he added.
For his third strategy, Lazaroff advised investors to maximize their retirement accounts.
“There are so many investment options for retirement and choosing the right ones can seem daunting,” he said. Lazaroff believes that the “mathematically optimal order” for maximizing retirement investments is: first, invest at least the minimum amount in a company’s retirement plan to receive consideration; second, contribute to a Roth or a deductible traditional IRA; then, invest the maximum amount in a company 401(k) plan; finally, contribute to a non-deductible traditional IRA to benefit from tax-deferred compound growth.
For those in a position to invest in a health savings account, or HSA, Lazaroff recommended making it the second priority on the list, after receiving the employer-sponsored retirement plan match. “This account offers a triple tax benefit: a tax deduction on contribution, tax-sheltered investment growth and tax-sheltered withdrawals when used to pay for medical expenses” , he explained.
Next, Lazaroff emphasized the importance of make the most of your money.
“Investing while covering expenses can be a tricky dance, especially at a stage in life where financial responsibilities seem to be multiplying,” Lazaroff said. “The trick is figuring out how much you can put aside while still having enough cash on hand to meet immediate needs.”
Lazaroff advised investors to minimize cash in personal investment portfolios to generate returns more efficiently and alleviate inflationary concerns.
Since checking accounts don’t earn much interest, Lazaroff doesn’t recommend keeping more than a full month’s worth of expenses in a primary checking account. In fact, for people with very stable income streams, keeping between 25% and 50% of a month’s expenses can be enough to smooth out fluctuations.
As for emergency savings, Lazaroff advised having at least enough cash to cover three months of expenses, ideally in an online account that offers more interest.
Lazaroff also stressed that investors should always plan for the unexpectedsince emergencies can potentially be “financially crippling” for those who are unprepared.
Lazaroff believes that good life insurance coverage is essential – recommending a term life insurance policy rather than a permanent insurance policy – and has also advocated for having an estate plan in place to protect personal property. And with a 26.8% chance of disability for young workers before they reach retirement age, according to data from the Social Security Administration, he also advised serious consideration of disability insurance coverage. .
Finally, Lazaroff recommended that investors acquire help of professionalsciting data from Vanguard showing that financial advisors can increase relative returns for individual investors by around 3%.
Even though Lazaroff thinks human financial advisers are only profitable for investors with more than $500,000 in their investment accounts, there are still options for those below that threshold, such as robo or hybrid advisers, a he explained.
And once an investor crosses the $500,000 mark, Lazaroff said it’s critical to find an adviser who not only offers investment advice but also provides “comprehensive wealth management so you can put order in your entire financial house and keep it that way forever.”
“That means proactively helping to optimize your savings plan, develop an estate plan, implement tax-saving strategies, analyze insurance, eligibility strategies, and more,” a he explained. “Perhaps most important of all, hiring a comprehensive wealth manager frees you up to do the things you love most in life and alleviates the stress that can come from managing your financial affairs.”