- Plancorp CIO Peter Lazaroff has 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 payoff plans, here’s six strategies to consider.
Because time is money, there’s one universal truth all investors can agree upon: the earlier 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 an applicable notion at any stage or your investing career, even though personal investing preferences might shift over time depending on individual life goals.
One particularly pivotal stage for personal investing is in your 30s, according to Peter Lazaroff, the chief investment officer of wealth management firm Plancorp, which manages $6 billion in assets.
“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30s, the looming worries of graduating, starting a career, and climbing out of the student loan debt hole probably have been replaced by more domestic concerns,” said Lazaroff on a recent episode of The Long Term Investor Podcast, citing marriage, parenthood, and the median age of a first-time homebuyer at 33, according to data from the National Association of Realtors.
He continued: “Your 30s are the time to begin building lasting wealth to meet life’s growing demands.”
On the podcast, Lazaroff shared six personal finance strategies specifically geared towards investors in their 30s to consider, with the clarification that this information may be useful even for those outside of this targeted age range.
“The financial decisions you make in your 30s will impact you for the rest of your life,” said Lazaroff. “With these strategies, you can plan for a successful retirement long before you near the end of your career.”
6 personal finance strategies for investors in their 30s
First of all, Lazaroff emphasized the importance in consolidating multiple investments, such as separate 401(k) or Roth IRA accounts, into one easily accessible platform.
“Pooling them in one place makes it easier to see the role each investment plays in achieving your financial goals,” he explained. “It also will help you avoid redundancies and manage your overall risk.”
However, Lazaroff cautioned investors to be careful about any potential tax consequences or closure costs that might be associated with account transfers.
Next, Lazaroff advised investors in their 30s to get strategic about paying off debt.
While he cautioned that every individual’s financial situation should dictate their exact payoff priorities, Lazaroff recommended investors generally first prioritize paying off private loans or high-interest debt that isn’t tax-deductible, such as credit cards, then debt with private mortgage insurance, followed by debt that’s high-interest yet tax-deductible, like some forms of business or student loans. Debt that’s both tax-deductible and has a reasonably low interest rate — which Lazaroff classified as below 4% — should be saved for last.
“It’s critical to get as much of this debt behind you as possible at this stage in life, 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 options for retirement investing and choosing the right ones can feel daunting,” he said. Lazaroff believes the “mathematically optimal order” to maximize retirement investments is the following: first, invest at least the minimum amount into a company’s retirement plan to receive a match; next, contribute to a Roth or deductible traditional IRA; then, invest the maximum amount into a company 401(k) plan; finally, contribute to a traditional nondeductible IRA to receive tax-deferred compound growth.
For those that are able to invest in a health savings account, or HSA, Lazaroff recommended making this the second priority on the list, after receiving an employer’s retirement plan match. “This account offers a triple tax benefit: a tax deduction on the contribution, tax-free investment growth and tax-free withdrawals when used to pay for medical expenses,” he explained.
Next, Lazaroff emphasized the importance of making the most of your cash.
“Investing while covering expenses can be a delicate dance, especially at a stage in life where financial responsibilities seem to multiply,” Lazaroff said. “The trick is figuring out how much you can put away while still having enough liquid cash on hand to meet immediate needs.”
Lazaroff advised investors to keep cash to a minimum in personal investing portfolios to more efficiently generate returns and alleviate inflationary concerns.
Because checking accounts don’t earn much interest, Lazaroff doesn’t recommend keeping more than a full month’s expenses in a primary checking account. In fact, for people with very stable streams of income, keeping anywhere between 25% to 50% of a month’s expenses may be enough to mitigate fluctuations.
When it comes to emergency savings, Lazaroff advised having at least enough cash on hand to cover three months worth of expenses, ideally in an online account that provides more interest.
Lazaroff also pointed out that investors should always plan for the unexpected, since emergency situations can potentially be “financially crippling” for the unprepared.
Lazaroff believes that proper life insurance coverage is essential — recommending a term life insurance policy over a permanent insurance policy — and also advocated for having an estate plan in place to protect personal assets. And with a 26.8% probability of disability for young workers before reaching retirement age, according to data from the Social Security Administration, he also advised seriously considering disability insurance coverage.
Finally, Lazaroff recommended investors get assistance from professionals, citing data from Vanguard showing that financial advisors can increase relative returns for individual investors by roughly 3%.
Even though Lazaroff believes that human financial advisors are cost-efficient only for investors with above $500,000 in their investment accounts, there are still options for those under this threshold, such as robo or hybrid advisors, he explained.
And once an investor does cross the $500,000 mark, Lazaroff said that it’s key to find an advisor that not only offers investing advice, but also provides “comprehensive wealth management so that you can get your entire financial house in order and keep it that way forever.”
“That means proactively assisting in optimizing your savings plan, developing an estate plan, implementing tax-saving strategies, analyzing insurance, entitlement strategies, and more,” 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 matters.”