How to build wealth in your 30s is a very different question for millennials than it was for previous generations. Setting money aside and letting it sit in your account doesn’t cut it anymore.
Out of many options to combat hyperinflation, long-term investing in the stock market stands out for its high return potential. The numbers don’t lie. Over the past century, equities have far outperformed any other asset class and enabled millions of Americans to build wealth for retirement.
Why is it hard to build wealth in your 30s?
Building wealth in your 30s is challenging due to a combination of financial responsibilities and lifestyle changes. This decade often involves major life events such as marriage, homeownership, and starting a family, all of which are financially draining.
Additionally, individuals may be grappling with student loans accumulated in their 20s. These financial pressures make it difficult to allocate funds towards wealth-building investments.
Building wealth in your 30s sustainably
The following ten tips are designed to guide you through the process of how to build wealth in your 30s sustainably and ensure that you stay on track to reaching your wealth goals.
1. Invest in growth stocks
When in your 30s, you are young with lots of energy and knowledge to gain. Your market value in the corporate world is rising fast. In the stock market, the value creation prospect of young(ish) growth companies is tremendous – and in certain cases much higher than yours, sorry. The Ziggma’s free stock screener is a great tool to identify growth companies with tremendous value creation potential.
2. Make use of compounding
Utilizing the compound effect is a great tool when it comes to how to build wealth in your 30s. In essence, compounding leverages time to exponentially grow your investments. This effect transforms modest, regular investments into significant wealth over time. By starting early and consistently investing, you capitalize on this powerful financial principle.
What sounds complex is actually as simple as not letting cash “lie around” but reinvesting dividends and interest payments so that these funds can in turn generate returns. The compound effect not only accelerates wealth accumulation but also instills disciplined financial habits, setting a solid foundation for future financial stability and security.
3. Diversify your investment portfolio
Making sure your portfolio is properly diversified is key when looking to build wealth in your 30s. Diversification spreads out risk and capitalizes on the growth potential across different sectors and asset classes.
This approach mitigates the impact of volatility in any single investment, leading to more stable and consistent returns over time. Diversification can be achieved by investing in a mix of asset types (stocks, bonds, real estate) and geographically across markets. Once you have built a well-diversified portfolio, be sure to monitor it through a portfolio tracker, such as Ziggma.
4. Stay in control
A critical aspect of wealth building is to stay in control at all times. Inattention over a prolonged period of time can set you back big time.
Track your portfolio quality and performance from a portfolio tracker dashboard to get the full picture. Very importantly, track your portfolio through time to make sure it consistently gets better.
As a stock investor, it’s highly recommendable that you also track how the companies you own fare over time. In fact, it’s quite similar to tracking your favorite sports team or artist. You expect them to progress. So should you portfolio companies.
The best portfolio trackers make it easy to monitor companies’ business key performance indicators. Monitoring portfolio stocks’ business KPIs common practice among professional investors. Private investors often fail to monitor companies financial performance once they are part of the portfolio and thus fail to sell companies that underperform.
5. Educate yourself about investing
For investors in their 30s, educating themselves about investing and the stock market in particular is paramount to reaching a financially secure future. Empirical research consistently shows that over the past century, investing in the stock market has outperformed returns generated by any other asset class, highlighting the significant potential for wealth accumulation through equities.
By understanding the fundamentals of the stock market and the principles of risk management and diversification, investors can make informed decisions that align with their financial goals and risk tolerance. This knowledge empowers you to navigate market volatility, recognize opportunities for growth, and avoid common pitfalls that can undermine their investment objectives.
Furthermore, educated investors are better equipped to construct a portfolio that leverages the historic returns of the stock market, optimizing their financial security and wealth-building potential in the long term.
6. Invest sustainably
Sustainable investing, often seen as a strategy that aligns financial goals with personal values, has emerged as a powerful tool for wealth building. When considering how to build wealth in your 30s, focusing on investments in companies that prioritize environmental, social, and governance criteria is a great idea.
It lets you tap into a market of innovative and forward-thinking businesses poised for growth. Research from Morgan Stanley’s Institute for Sustainable Investing indicates that sustainable funds often provide returns comparable to or exceeding traditional investments. Their analysis revealed that from 2004 to 2018, sustainable funds consistently matched or surpassed the performance of comparable traditional funds.
Furthermore, a study published in the Journal of Sustainable Finance & Investment suggests that ESG integration into investment strategies can lead to better risk-adjusted returns over the long term. These findings underscore the potential of sustainable investing not only to contribute positively to societal and environmental outcomes but also to offer a compelling avenue for wealth accumulation in your 30s, blending profitability with purpose.
7. Don’t take on too much risk
For young investors keen on building wealth in their 30s, it’s crucial to strike a delicate balance between seeking returns and managing risk. While higher-risk investments can offer the allure of substantial rewards, they also come with the potential for significant losses, particularly if market volatility strikes.
The 30s are often a time when individuals might be planning for major life milestones such as purchasing a home, starting a family, or investing in career advancement. Taking on too much risk could jeopardize not only these short-term goals but also long-term financial security.
A study by Vanguard highlights the importance of a balanced approach to investing, showing that diversified portfolios tend to offer more stable returns over time, thereby reducing the risk of substantial losses. This balanced approach enables young investors to steadily grow their wealth while still protecting against the downside, ensuring that their financial foundation remains solid as they navigate through the critical decade of their 30s.
8. Beware of fads and social media hypes
It’s generally a poor idea for any investor, including those looking for ways on how to build wealth in their 30s, to blindly follow fads or social media hype. Investment recommendations on social media rarely hail from professional investors. In many instances they are loaded with conflict of interest.
Social media can amplify speculative investments, driving up prices based on hype rather than fundamental value. This can lead to bubbles that eventually burst, resulting in significant losses for those who invested late in the cycle. Blindly following these trends without thorough research or understanding can lead to poorly diversified portfolios and exposure to unnecessary risk.
Instead, investors should stick with their investment strategy and make sure it aligns with their long-term financial objectives. This is the only approach consistent with sustainable wealth building. It is preferable to chasing short-term gains at all times.
9. Minimize fees
Paying excessive fees has the opposite effect of compounding by creating a drag on investment returns for long-term investors. It can set you back big time.
Fees come in various forms, including management fees, transaction fees, and fund expense ratios. Consider an example in which you pay 1% in fees on a $100,000 investment that earns an average annual return of 7%. This could be going on in your 401k right now.
Over 30 years, the fees would amount to approximately $100,000 in lost earnings. This reduces the potential portfolio value by hundreds of thousands of dollars. The reduction occurs because you not only lose the money paid in fees but also the potential earnings that money could have generated if it remained invested.
Therefore it’s advisable to choose low-fee investment options. These allow you to retain more of your returns. Your investments can grow more efficiently and drive wealth accumulation over time.
10. The kicker: Venture capital
Small venture capital investments can offer you the opportunity to earn excess returns. Though risky, venture capital can present a viable option when looking for ways on how to build wealth in your 30s.
Historically, venture capital investments were primarily accessible to institutional investors and high-net-worth individuals due to their high minimum investment requirements and regulatory restrictions. However, recent developments have democratized access to these opportunities.
Platforms like AngelList or RaiseGreen have enabled private investors to participate in venture capital with significantly lower capital outlay. For example, through syndicates or crowdfunding campaigns, you can invest in startups for as little as a few thousand dollars.
While the potential for high returns is appealing, venture capital investments come with high risks. Many startups fail, leading to total loss of invested capital. Moreover, these investments are typically illiquid. You cannot easily sell your stake if you need access to your money or if the investment underperforms.
Therefore, despite the accessibility and potential for significant returns, you should approach venture capital with caution, recognising the high-risk nature of these investments.
How to build wealth in your 30s: Key takeaways
By following these tips on how to build wealth in your 30s you can build a solid foundation for your long-term wealth trajectory. While saving and budgeting are also valuable tools to create wealth, investing in stocks and the financial markets in general, should be your top choice.
These tips are straightforward and easy to follow. You do not have to be an investment professional to understand and implement them. Get started today, if you haven’t already.