Millennials in their 30s face a complex balancing act between making major expenditures in the present – buying property, raising a family – and weighing how much to put into long-term savings.
Investors in Their 30s Have Competing Priorities
“People in their 30s should have retirement on their dashboard even though it is many years in the future, but they’re often juggling other financial goals as well,” says Christine Benz, Morningstar’s Director of Personal Finance. “It might be buying a first home or a larger home...funding education is often top of mind. We’re seeing more and more people coming out of school with heavy student debts so it’s not uncommon to see people carry them into their 30s.”
But saving for retirement in your 30s is also critical. According to a study by the Center for Retirement Research at Boston College, people who began saving in their mid-30s only needed to save 15% of their yearly income to retire by age 65. Those who began to save in their mid-40s needed to save a whopping 27%.
Investors in their 30s might have several questions on their minds, including:
- Should I repay debt, save cash, or invest?
- What will help me most if interest rates rise?
- Is investing for retirement worth it?
- Should I avoid locking my savings away in case I need it?
- Should I align my savings with my values, or keep them separate?
7 Tips Investors in Their 30s Should Consider in 2023
In Morningstar Investment Management’s (MIM) Outlook for 2023, the MIM team has highlighted 7 actions that investors in their 30s can take, to help them succeed financially.
Tip 1: Deal with competing goals – People with competing goals often feel more comfortable where the savings to support these goals are compartmentalized. Having different pots can shift the effectiveness of investing.
Tip 2: Reconfigure the “why” of investing – Goals remain a north star. Research shows that 71% of people change one of their top 3 goals by doing a simple review, comparing to a master sheet of common goals.
Tip 3: Shift the conversation to value drivers – Could you benefit from broader financial planning? All too often, investors think about investing first, but the foundations are just as important.
Tip 4: Focus on passive cashflow generation – When thinking about saving, consider future retirement outcomes in annual income in real terms. How much will you need to retire? It is easier to think of $60,000 per year, than to think of a savings pot of $5 million, as the latter can be overwhelming.
Tip 5: Be aware of behavioural biases – Research shows that behavioural coaching can add meaningful value. Or conversely, bad behaviour is destructive. Consider the principles of good investing and associated habits.
Tip 6: Help align values with investments – If you want to include your values in your investing, start by understanding what those values might be. Many investors in their 30s may want to consider values-based investments, perhaps with a multi-asset ESG portfolio. Start by understanding your preferences.
Tip 7: Reinforce the habit of regular investment – People in their 30s can supercharge their net wealth by topping up holdings on a gradual basis. An idea in your 30s is to save more during each pay rise, to avoid lifestyle creep.
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