This is the second in our six-part series looking at how to invest £10,000 at different ages. We have previously looked at 20-year-old investors and have also covered those in their 40s, 50s, 60s and 70s.
Your 30s are arguably the most difficult period to decide how to invest as you balance short-term cash calls with long-term savings. How to invest and what to put your money in will depend entirely on how long you can go without needing to dip into it.
In the previous article of this series aimed at those in their 20s, we covered how to save for a new home, open a stocks and shares Isa for the first time and outlined the benefits of putting money into a pension. If you are unsure about any of these points, we recommend you read it before continuing below.
In your 30s, you may have already bought a house and got married but there are always life events that will require you to dip into savings.
Starting a family, for example, will increase the need for short-term cash for things from buying prams, cots and other essentials to upgrading to a family car or larger home.
What’s worse, you will be expected to do this while your earnings are still far off its peak – statistically people earn their highest wage in their 40s and 50s.
But you still need to be putting money aside for a rainy day and be thinking about big ticket expenses like school fees and even retirement.
With both short-term and long-term needs, we recommend splitting the pot into two, investing £5,000 for the short term and £5,000 for events down the line.
A reminder, in this exercise we have chosen £10,000 as a starting point, but the thought process should remain the same regardless of the amount you have saved. For this guide, we have assumed there is no high-cost debt to be paid off, which should be prioritised, and that there are emergency cash savings elsewhere.
How to invest for the short term?
The length of time you can leave your money invested for is important as this directly translates into how much risk you can take. And this gives you an idea of what type of investments you should have (see box below).
Investing for a short period can be dangerous. Although it is enticing to make good returns in one year by investing in stocks, there is a higher probability of losing money as well. Over time, the probability of making money via stock markets increases.
Matt Conradi of financial advice firm Netwealth said the short-term £5,000 savings should go into a stocks and shares Isa so the money can grow tax efficiently while remaining accessible.
He said: “This money might be needed at some point in the next five years, and it will be important to make sure the balance is struck between growing and protecting the pot.”
He said a multi-asset fund, with a higher allocation to bonds than stocks was the most appropriate for these investors.
There are both active funds – where a manager picks investments – and passive funds – where they track markets. For passive tracker funds we suggest the Vanguard LifeStyle range, where you can choose your ratio between stocks and bonds in increments of 20pc.
All the funds charge 0.22pc. Those needing the money shortly should look at the lower-risk funds such as the Lifestrategy 20 or 40.
For an active fund we recommend the Schroder MM Diversity. Although performance has lagged its peers in recent years, it is important to remember the past 10 years have seen unprecedented gains for stock markets so funds with a higher allocation to bonds have not stood out.
The fund has beaten its rivals this year so far, down just 3.7pc, while the British market has fallen 20pc.
How to invest for the long term?
Jason Broomer of fund ratings agency Square Mile said 30 was a good time to start seriously building up a pension pot despite potential strains on the family budget.
As a 30-year old is likely to work at least another 30 years, they can afford to take more risk for long-term investments.
Investors should feel comfortable investing their long-term savings entirely in stocks and could do so via a passive fund, as the ability of active funds to outperform over the long-term diminishes.
For those confident in picking funds, a popular choice is Fundsmith Equity, managed by Terry Smith. The fund invests in a small number of companies Mr Smith believes can outperform the global market.
“Braver souls” could look to invest in “value” funds, which aim to buy cheap/unappreciated stocks in the hope they rebound, Mr Broomer said.
This style of investing has done poorly in the past decade as investors have sought companies that can grow, regardless of their price, but this is only a recent phenomenon.Over several decades, value investors have performed better than others.
Mr Broomer’s choice in this category was R&M Global Recovery, run by veteran fund manager Hugh Sergeant. For further fund selections, the Telegraph 25 is a list of funds recommended by our money experts.
Setting up your family’s future
If you can manage to save extra cash during this period of life, you can open a Junior Isa for your child from as little as £25 a month. Grandparents and other family members can top up the accounts too.
Emma Wall of broker Hargreaves Lansdown said: “As a Jisa cannot be accessed by the child until they turn 18, you can make long-term investments, and can afford to take on more risk for more reward.”
She suggested the JP Morgan Emerging Markets fund, headed by Austin Forey and Leon Eidelman as a good option for investors.
Mr Forey has run the £1.9bn fund since 1997 with an enviable track record, beating both his peers and the benchmark. Investors that put £1,000 in the fund when he took charge would now have £5,735.