I’m 30 yrs old. Have no debt & a house paid outright. I have $100k to invest for 30yrs/retirement. How should I do it?

This question and answer originally appeared at Quora.

I would firstly say that there is no need to rush.

Take a year to learn about investing to ensure that you understand the decisions you make and the investments that you will select.

If you don’t wish to go through the process of learning and understanding, then you will need to find a suitable professional in the USA who can help you (i’m assuming you are US based).

My take on this is that over 30 years the fees on professional advice can be quite high (as i’ve outlined in an article called ‘don’t be a fish’. You can therefore become more prosperous with a DIY approach (with the huge caveat that you must be willing to learn).

To get you started I would suggest the following are steps to consider:

  1. Consider your personal goals – Before you start investing you should think about where you want to be in the future, consider shorter term goals to aim for, do you need these funds for other purposes etc. Where do you want to be in 5/10/30 years time – it helps to try and visualise these and then match your financial choices to your personal goals.
  2. Diversification – learn how to diversify your investments across a range of shares (which can be achieved very cheaply and simply via index funds – see Vanguard), plus across a range of asset classes – shares, bonds and property for example.
  3. Dollar cost averaging – Just because you have $100,000 to invest, it doesn’t mean you must invest $100,000 today. You could take your time to invest and gradually allocate your funds to financial markets – be patient and cautious, you don’t have to always achieve the market return to achieve your own personal goals.
  4. Over a 30-year period of time, you are generally more able to accept volatility (fluctuations in market prices) than someone with a shorter time horizon. This would indicate that shares should generally form a very high part of your portfolio. You have to be careful and make sure you don’t panic when there are downturns (which will be classed as crashes in the media). If you can accept and embrace volatility you could end up with higher returns, that can make a huge difference to your wealth in the future. For example, $100,000 with a compound annual return of 5% pa over 30 years becomes $432,000. But if you achieved 7% pa over 30 years it becomes $761,000. Quite a difference! However you need to think about how you will react if you see a portfolio worth say $300,000 one day and then 6 months later you see it worth only $150,000 . . . I expect like many, you would feel rather sick, but the truly successful investors firstly don’t panic and sell, but also use spare cash to invest more on these occasions. You will never know what type of investor you are until you experience it – so take some time to get an idea of your own risk profile and behaviour.
  5. Tax – pay as little as possible without going into schemes that are more likely to result in enforcement than tax saving.
  6. Keep saving – How much you save is far more important than the level of investment return you will receive. Make sure you select a tax efficient, low charging, and personally appropriate portfolio; but remember to keep spending less than you earn and saving up – You may find you can shed years off your intended retirement/financial freedom goal of age 60 – perhaps even becoming financially free at age 50.

Finally, focus on making sure you make sensible financial and investment choices, but don’t become too worried about money. You are already vastly wealthier than most of the people in the world and should take comfort from that fact. I have seen people who have net worth of $1 million plus and still don’t feel like they have enough money or financial security (which I find a little sad, although entirely understandable in our complicated and ever changing world).

Good luck

This answer first appeared here.

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Mark Underdown

Financial Planner, Small Acorn Money

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