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?
Having excess wealth at age 30 or any age is a problem most people would love to have. For someone your age I would think a long term growth strategy would be beneficial. And depending on the size of your retirement accounts you may want to allocate a small percent of your investments in alternative investments.
Some alternative investments require accredited status and you may give up liquidity but the long term returns outperform the old standard asset allocation mix of stocks, bonds and cash.
This model of investing is referred to as the Yale University Endowment Model. In 1987, David Swensen, the chief investment officer of Yale Endowment, moved aggressively into non-traditional and often illiquid asset classes like foreign equity, absolute return, real assets, real estate partnerships and private equity.
His unconventional approach produced a 20-year unbroken record of positive returns, resulting in stellar growth of the endowment from $1b to $17b. No wonder rival school Harvard University studied him closely. Other institutional money managers have followed his strategy.
Yale’s six asset classes are defined by their different expected response to economic conditions, such as inflation, growth and interest rate. As these asset classes are noncorrelated to the stock or bond market and over time during bear markets potentially producing better long term returns versus investing only in stock and bonds.
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.
Dear 30 year old with Excess Funds,
BE DISCIPLINED, FOCUSED, HAVE VISION, HAVE A GOOD ADVISOR, SAVE, SAVE, SAVE!
I am honored to provide a response to your very interesting question! My job and my passion to educate and excite investors such as you learn to become more financially saavy and to become financially independent.
30 years old, stable job, single, unsure what to do with excess funds. You my friend are in a fabulous position to build your personal net worth and personal power leading to financial freedom. Bravo! Carpe Diem!
I applaud you for your astute critical assessment of your life situation; single, seeking a long term perspective of how to maximize long term gains for financial independence. I provide beginning investors with web sites to teach basics on the automation of finances getting to know skills and discipline of money management. You are one step ahead of the game taking monies you have being disciplined for the long term, a rare trait.
You acknowledged you have excess money. You acknowledge you want to learn how to grow the money you have. To me excess money means little or no bad debt. If this is so, great! Let us begin.....
As life progresses, whether you get married or not, whether you have children or not, what ever challenges come your way, my advice, in advance of knowing your big picture or your journey, keep open about your money goals. Keep flexible. At the same time, keep your objectives focused. If and when you find a life partner be clear and disciplined to share your plan to maintain the "A+" ratng I give you today!
I love the fact you already have set aside an emergency account. Bravo!
You have a 401(K) plan at your office which you have maxed out. You are blessed that the plan your firm offers provides matching which is now becoming more and more unique. In 2017 the government caps tax-advantaged salary-reduction 401(k) contributions at $18,000 for someone your age. The 401(K) utilized the way it was intended with compound anual growth will pave the way to financial freedom if each component within the 401(K) is properly analyzed, and you maintain a watchful eye over tracking performance of the 401(K). This can be accomplished with the assistance of a trusted advisor.
WHAT DOES THAT MEAN?
There are numerous choices to populate your 401(K). (Stock ETF, Stock Mutual Funds, Bond Mutual Funds, Money Market Account) Careful section of any combination of these choices based upon your long term goals and objectives will get the best return on your investment long term. The rationale utilized by the investment community is to analyze one-five-ten year returns for any particular fund, analyze the type of companies, analyze management team, analyze turn over rate of stocks within the fund, analyze Price/Earnings Ratio of the companies within the fund.
Any exceptional Advisor will act as Fiduciary striving to educate you about the markets, make you fully aware of exactly what you are doing each and every step of the way.
Do not allow an Advisor to do for you the entire process. Become part of the plan, part of the journey.
When you utilize the 401(K)l as an income generating tool, managed carefully this will pave the way to financial freedom seeing the goal you intend to achieve in advance.
You have taken full advantage of opportunity of the Roth IRA, a retirement savings account allowing your money to grow tax-free. You fund a Roth with after-tax dollars, meaning you've already paid taxes on the money you put into it. In return for no up-front tax break, your money grows tax free, when you withdraw at retirement, you pay no taxes. This tool allows for a max allowable withholdings up to $5,500 limit where the modified adjusted gross income must be less than $133,000 as single. Bravo!
I recommend setting up an account with an investment brokerage account. There are many accounts to choose from each with their own criteria for investing and most with their on line education components. An astute Advisor will direct your attention to one or more accounts that will suit your needs.
I focus first on education and empowerment for each client. My goal is to lead investors to financial independence one baby step at a time down the path of discipline, clarity and focus. Advisors whom you trust and share confidential information will have your best interests at heart. You must trust this relationship.
Acknowledge the current Federal Rate on long term capital gains on equity accounts and dividends is 15-20%. The key to investing in tax free accounts, keep your expenses down, get the most benefit despite capital gains, hold stock or mutual funds longer versus short term if possible, choose mutual funds with low annual purchase and sales of internal stocks within the fund (turn over). Per recent tax law changes, funds will be encouraged to distribute capital gains from the sale of stock to investors at higher Federal Rates (up to 39.6%) to the extent of short term capital gains. This means for any gains within an account, there must be room to give back!
NON DEDUCTIBLE IRA
I recommend learning about and investing in the NON DEDUCTIBLE IRA if you possess a small business. If you find yourself creating a product, have a side job (dog walker), or you form a company where income is generated from a job or self-employment you can open a NON DEDUCTIBLE IRA where the account balance will grow tax deferred. Because you are young with a long term investment horizon, tax-savings accumulated will be significant in such an account.
That said, within the NON DEDUCTIBLE IRA withdrawals are taxed as ordinary income, rather than at the lower long-term capital-gains rates applied to taxable accounts. Given the current 15% or 20% maximum federal rate on long-term capital gains and qualified dividends, such accounts aren’t attractive for those with a relatively short investment horizon but to you with a long term horizon I would consider this investment opportunity if and when your entrepreneurial spirit kicks in (create a company helping 30 year olds becoming financially fit)!.
Variable Annuities carries with them high expenses which may overwhelm the tax-deferral advantage of these contracts. However, this investment vehicle may make sense for a fixed-income assets (bonds or cash) if you plan to save within such an account for many years. Eventual gains from compound interest free of any current tax hit may outweigh high fees from such investment vehicles.
REAL ESTATE AND LAND INVESTING
Real estate investing is one of the oldest forms of investing, around since the early days of human civilization, predating the stock market. Real estate is one of the five basic asset classes for the building and creation of cash flow, liquidity, profitability and diversification.
To make significant money from ownership of real estate purchase in a "best" location, analyze market demand, have as your ultimate goal appreciation of the asset whether a primary residence or income producing property.
Enjoy this dynamic process. If you wish to meet, I am honored to be of service.
Jan Attard, MBA, RIA
Well this is a wonderful problem to have!
First, I would suggest creating a savings plan for you next big anticipated purchase. For example, a trip, a car, a down payment on a home etc. this is allow you to pay cash in the future.
Next reconsider your current annual 401K retirement savings contribution. Typically, the contribution amount needed to qualify for the full employer match on a 401K will not grow enough to fund retirement. Having said that, and without knowing how much you have saved so far, being under age 50, you are allowed to contribute a total of $18,500 annually to your employer's 401K plan. I would suggest that you determine how much more your can afford to contribute so that you can get as close to a $18,500 annual contribution as possible and then increase your 401K contribution rate accordingly.
Also, you may wnat to meet with a CFP or financial planner to help you understand is there is a gap in your current retirement savings rate and identify how much additional funds you may need to save annually now to meet you annual income needs when you retire.
On another note, don't forget the retirement savers credit - you may be eligible when you file your taxes in 2017.
Congratulations on your financial situation! I am launching a training platform that covers the many different scenarios everybody should consider and the first question from an Advisor working for your interests, is what is your dream? Your goals and not what I have I can sell to you, not saying all Advisors do this.
I myself, without consulting with you, will not be able to make recommendations. Let me ask you if you have a TRUST, a will, etc. ASSET protection is the foundation of keeping your wealth.
I can refer you to a good attorney but first, you need to meet with an Advisor or several to find one that will put together a Comprehensive Portfolio Review that looks at YOUR BIG PICTURE.