Investing in your 30s

For many, your 30s are a time of stability. You’re likely no longer a student. You’ve likely found a foothold in a career, and may have even started climbing through a promotion or two. You might even have taken some steps towards starting a family. And quite often, your 30s are the first time you have the income and stability to really get serious about saving towards major life goals. 

Even if your path hasn’t taken you where you expected, this is the point in your life where you’ve got a clear idea of where you want it to go. And that means you’re in a great position to plot out a course to get you there.

With maturity and experience comes the ability to take a look at your current situation and put some serious thought into where you want to be in ten, twenty, or thirty years. While it may seem obvious, figuring out your specific goals is an essential first step towards achieving them.

Many people have several goals that they want to achieve; for example, one might want to start a family, buy a home, and retire comfortably, all while treating themselves to a vacation once per year. These are all goals that will require some amount of saving, but they all have different timelines–and likely different priorities as well.

Your 30s are a great time to invest towards your goals for a few reasons, the greatest of which is how much time your money has to build towards long-term goals. And while these are technically based in math, the potential that this time represents can be very exciting.

Compound interest

Time in the market means time your money has to provide returns, but it also means time for those returns to start providing their own returns. Eventually, your investments can snowball into a massive amount. For example, let’s look at $20,000 compounded over 10 years at the S&P500’s historical average return rate of 10.7%:

As you can see, in 10 years the initial contribution has more than doubled, and the rate of return on the initial investment increases exponentially as the graph continues. 

In other words, money put towards long-term goals, such as retirement, is worth more when it has more time to compound. You can learn more about compound interest in our article here.

Time horizon

Time horizon is something that should be taken into account when considering an investment plan. Time horizon can be simplified to “When will I need the money?”

Time horizon is often directly associated with risk tolerance: while higher-risk investments tend to have high reward potential, they also carry a greater risk for losses, especially if the market experiences a correction. While the market has historically bounced back after recessions, it takes time to regain its value. If your time horizon is short, then you may not have enough time to recoup your losses before you need to withdraw your money.

Like compound interest, time horizon can be an advantage to investing towards long-term goals in your 30s. Since your plan likely involves spending decades in the market for goals like retirement, it might allow you to justify a strategy that features higher strategic risk and greater potential returns. 

Be sure to keep in mind that a long horizon isn’t a free ticket to make reckless decisions. It’s just another factor to take into account when taking calculated risks.

Interest vs. Returns

While this isn’t unique to investing in your 30s, it’s worth mentioning every time we bring up math: compounding isn’t a one-way street. Most outstanding debts will have some amount of interest associated with them. These debts should be taken into consideration when working out an investment strategy. Basically, it boils down to:

Generally, high-interest debts such as credit cards will have a higher rate of interest than one could expect in returns from most types of investment. Other debts, such as mortgages and car loans, often have scheduled payments and interest rates that might be below your expected rate of return on your investment strategy.

Of course, there are other things to be kept in mind, such as how some loans have repayment schedules that include penalties for early repayment. Ultimately, it’s up to your own judgment where your money is best placed. 

Before we get into details about the expenses associated with specific life goals, let’s cover some basic strategies that are widely considered best practice for every Canadian in their 30s:

• Prepare an emergency fund: You may want to make sure that you have some liquid funds (meaning funds that you can access quickly and easily) to cover any unforeseen expenses such as car repairs, emergency home maintenance, etc. This can also act as a cushion to cover costs if you find yourself unable to work for a period of time.
• Consider short-term and recreational expenses: While this article focuses on large, long-term goals, you don’t want to neglect short-term desires as well. If you’re planning a budget, make sure that you take your recreational needs into account.
• Know your priorities: Everybody has their own priorities. Make sure that you have a sense of which expenses are more important to you and which are non-essential nice-to-haves, just in case you find yourself with a little extra (or a little less) available to contribute.
• Prepare for the inevitable: While retirement isn’t generally top-of-mind in your 30s, it’s an unavoidable part of aging, and retiring comfortably can require a significant financial investment. Even if you’re planning on retiring later in life, it’s always a good idea to keep it in mind when making a long-term plan.
• Choose the right account: There are a number of tax-advantaged accounts available to Canadians, each with their own perks. To learn more about which account types are best suited to your goals, see our article about how to choose the right account for your investments.

It may not be something we think of when we’re younger, but weddings can get extremely pricey. The average Canadian wedding budget is between $22,000 and $30,000 according to MoneySense, but that number can vary widely depending on the size, location, and extravagance of the wedding.

Sometimes your family will help cover the cost. If this is the case, you will want to make sure that you know what they’re willing to contribute so that you can start saving up the difference.

New parents will likely tell you that parenthood is wonderful, exciting and life-affirming, albeit sleep-depriving and nerve-racking at times. At the end of the day, though, they’ll say it’s ultimately rewarding.

What they might not mention? Parenthood can also be expensive.

Estimates suggest that, according to a 2015 study, it costs over $250,000 to raise a kid to age of 18. If you’re planning on having kids, you may want to start making some investments to help you pay for expenses such as daycare, clothing, school supplies, recreational expenses, and so on.

You may also want to start investing towards your child’s future with an RESP. RESPs are tax-advantaged accounts that let you get free grants from the government through contribution matching programs.

If you’re currently in your 30s, homeownership is much more expensive for you than it was for your parents. Buying a home is a major financial decision that takes some planning. 

If you’re planning on buying a house, you’ll want to figure out a rough cost range of homes that meet your size and location needs. Once you have a price range in mind, you can calculate the down payment you’ll need to make.

You should also keep in mind the additional expenses associated with a new home, such as closing costs, legal fees, and moving costs. There are also ongoing expenses to keep in mind, like property taxes, property insurance, utilities, and repairs that might crop up.

However, you’re not on your own! The First Home Savings Account (FHSA) is here to help you save more by providing several tax advantages. Contributions are tax deductible and qualifying withdrawals are tax-free, meaning money you save in an FHSA towards your new home can give you a tax break or refund, and you don’t pay taxes on the gains from your FHSA as long as you use the funds to buy your first home. 

There are also a number of programs for first-time home buyers designed to help you become a homeowner. With these programs, a little careful financial planning, and a favorable mortgage, you could find yourself in your new home before you know it.

Want to know what you can afford with your current savings? Take a look at our mortgage affordability calculator to see your current price range, and how much more you’ll have to save to reach that dream home.

Ultimately, the goal of retirement savings is to save enough money to support your desired standard of living for the rest of your natural life. However, the amount required will vary widely from individual to individual based on a number of factors, including where you plan to live once you retire, whether you rent or own your home, and how much spending money you want to enjoy your retirement.

Retirement calculators are extremely useful in retirement planning. They allow you to enter your current age, savings, expected retirement age, annual income, and planned monthly contributions to see if you’re on track for your early retirement. Plus, if any unforeseen expenses or hurdles pop up, you can always return to the retirement calculator to play with the numbers and adjust your retirement plans accordingly.

It’s becoming increasingly common for adults to go back to school, either to boost their current careers or to change careers altogether. Going for additional training is a way that many people invest in their own futures, whether it’s to join a more high-demand industry, to improve their value (and paycheck) in their current job, or simply to find a more fulfilling profession.

While education in Canada isn’t as expensive as it can be in America, it’s still not cheap. You will want to make sure that you’ve budgeted out a plan to pay for your additional education, especially if you’re going to need to cut back your working hours while you learn.

To make your continued education easier, the Lifelong Learning Plan lets you borrow from money your RRSP without tax penalties to help finance full-time education or training. Plus, it’s always a good idea to look into the various grants and scholarships offered by various provincial governments and institutions.

Laying out your goals is the first, and some would argue the most important, step towards achieving them. Once that’s done, all that’s left is to keep on track.

The way to do that will vary from person to person, but Questrade has a number of tools available to help keep you on top of your goals:

• Pre-authorized deposits can be set up so you make automatic contributions towards your investment goals, and can be a great way to make sure that your own savings are a top priority, not an afterthought.
• Automatic investment and rebalancing can be set up through Passiv. This secure third-party program allows you to set up what you want in your portfolio, and in what amounts, and Passiv will automatically invest any extra idle money in your account. As a bonus, it can also rebalance automatically, meaning if one of your investments outperforms the others, it will automatically adjust back to your set strategy.
• A Dividend Reinvestment Plan (DRIP) can be set to automatically use the cash dividends of a security to buy more shares. Plus, DRIP orders are commission-free, allowing you to save even more.
• Questwealth Portfolios allow you to take a more hands-off approach to investing. With a Questwealth Portfolio, you are paired up with a pre-built portfolio that suits your goals and timeline. Questwealth Portfolios are fully automated and managed by experts, meaning all you have to do is contribute to the account and watch it grow.
  

Your 30s are truly a key time in your life, both with regards to achieving short-term goals and planning for your far future. After all, when it comes to investing towards what matters most to you, every little bit counts.

Note: The information in this blog is for information purposes only and should not be used or construed as financial, investment, or tax advice by any individual. Information obtained from third parties is believed to be reliable, but no representations or warranty, expressed or implied is made by Questrade, Inc., its affiliates or any other person to its accuracy.