What's the best thing to do with excess wealth at age 30?
I have excess funds and am unsure what to do with them I'm 30 years old with a stable job and single. I've already contributed to reach my company match on my 401(k) and maxed out my Roth IRA contributions. I have already set aside 1 year of emergency funds. Now I still have excess savings, and I'm unsure of what to do with the money. First world problem (I know), but what do you recommend to help grow my wealth?
No, please wait! Just kidding!!!!
My words of advice are this: Avoid any insurance product that is pitched for "tax deferral". May sound good now but such products are ridiculously overpriced, destroy liquidity and just push you into higher tax brackets when you do want your money. Let me broaden that to say, don't invest in anything that does not stand on its own investment merits without any alleged tax benefits. Never invest in anything where you need to borrow back your own money to spend it. Other than municipal bonds, in 30 years I can't think of a tax advantaged investment that I didn't regret using for my clients.
What to do: Start building a very solid boring portfolio of high quality large company stocks. Stocks are tax deferred until sold. Unlike annuities and insurance products, when cashed in you pay lower capital gains taxes instead of higher ordinary income rates. Individual stocks have no insurance or management fees. In 30+ years every single account of substantial size that a client has inherited looks nearly the same - filled with bellweather stocks (yes many pay dividends that are taxable, but like capital gains at a lower tax rate). Reinvest dividends when paid and take advantage of compounding.
Read about investing - not the BS "How To..." books, but focus on books about or that interview real successful investors. Read about Warren Buffett. Read the series of books by Schwager - The Market Wizards, The New Market Wizards... Also "Just One Thing" by John Mauldin. Anything by Michael Lewis. By 40 you will be your own market "guru"!...and pretty darn wealthy!
First of all - congratulations! You're doing great taking care of your money and saving for your future.
Since you've already taken care of the "big three" initial steps - matching contributions to 401(k), Roth IRA, and emergency funds - the next step is really up to you.
If you want to save extra money tax-deferred, work towards maxing out your 401(k) contributions. For 2018, that max will be $18,500/year.
If you want to save for "life events" - kids, house, vacations - consider opening up a non-qualified investment account. (If you're comfortable investing just use Vanguard or Fidelity. If you want a little help look into Personal Capital or Betterment. If you want more detailed help, consider looking up a financial advisor.)
If you want to invest in real estate, work towards understanding that market and build up your cash position to be ready to deploy.
If you want to invest in start-ups, consider looking into angel investor groups in your area.
At this point you have great flexibility and a wonderful opportunity to build your wealth for the future. It's a first world problem for sure - but one that is very important to come up with a solution that works for you!
Here's an idea for you: use a First World problem to solve a Third World problem. Talk to a good estate planning attorney and set up a charitable giving program to help people in need. There are many people suffering in this world, and some of them probably live on your block. Structured properly, this program could alleviate hardship for years to come.
And you know what the best part of this commitment would be? It could make you a better person. When you dedicate a portion of your resources to helping others, you become more of a giving person. Not only that: when you give more, you get more.
A charitable giving program with your extra money would be a win-win all around.
Congrats, that's a great situation to be in. First of all, you should consider what the purpose of the excess money will be for. Do you want to start saving for a home? A business? Accumulate wealth? etc.
You mentioned growing your wealth, so I'll assume that you plan on investing it. Maxing our your 401(k) would be the next tax-advantageous move, in addition to contributing to an HSA (health savings account) if you're a part of a high-deductible health plan. Maxing out the 401(k) (18k limit) for 2017) and HSA (3,400 limit for 2017) would reduce your taxable income. The HSA is can be used for qualified medical expenses, however if you have excess cash to use outside of the HSA for medical expenses up to your deductible you may consider doing so. The reason being is HSA's can invest the tax-deferred funds. ANOTHER bonus of the HSA is it essentially turns into an additional retirement account at age 65, when funds can be used for any expense without penalty.
Lastly, you could consider opening a taxable account to invest the money. You won't receive any tax benefits but it's more accessible and liquid than say your 401(k).
Nice job maxing your retirement accounts and setting aside emergency funds! A great option now would be to invest in one or a few different individual taxable accounts. One can be more conservative to help fight inflation (you could put the majority of your emergency funds in that one). Another could be moderate for short-term goals. A third could be aggressive to supplement potential long-term growth for later. Each account can be invested in an Exchange Traded Fund (ETF) portfolio to help diversify risk. Learn more about ETFs here.