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6 Investment Tips for Your Prime Earning Years

A couple in their prime earning years meeting with a financial advisor to maximize their investments.

There are many different types of financial investments. But they all typically take a strategic approach to enhance your wealth over time. This can involve dedicating resources, often money, to buy diverse assets with the expectation of generating a profit in the future. Working with a financial advisor can help you create a specific investment plan to help you reach those long-term goals. Here are six common strategies to invest that could pay off in the future.

1. Maximize the Amount You’re Investing

The first step towards achieving financial success and stability is maximizing the amount of money that you’re investing, as soon as you begin your first job. The importance of this can be seen in the potential long-term benefits that you could earn.

Maximizing your investments can involve optimizing your asset allocation and the management of your financial resources to achieve the highest possible returns and overall growth within an acceptable level of risk.

There are several investment strategies available. You can increase your savings rate, reinvest dividends and use employer match programs. For example, increasing your savings rate by just 1% can significantly impact your retirement savings over time. Similarly, reinvesting dividends could boost your investment returns.

One of the best ways to maximize what you can invest is by cutting debt. You can do this with a repayment strategy, like the snowball method, which prioritizes paying smallest debts first. The avalanche method, on the other hand, prioritizes debt with the biggest interest.

Another way to maximize how much you want to invest is to live far below what you’re earning. There are several practical ways to achieve this. One way is to create a budget to help you track your income and expenses, and highlight areas where you can cut back. Other strategies include cutting unnecessary expenses or increasing your income streams through side jobs or investments.

These habits, when practiced consistently, could potentially increase the amount of money available for investing, which may contribute to wealth accumulation.

2. Find Ways to Maximize How Much You Earn

The beginning of your career sets the foundation to establish your investment potential and overall wealth. So maximizing your earnings during this time will help you expand your investment opportunities

There are many common strategies to maximize your earnings. Though at this stage in your career, focusing on your main profession to get a promotion in your current job or taking a promotion at another company in the same career should be your priority. If, however, you’re looking for additional income outside of your career, here are two additional opportunities to keep in mind:

  • Start a side hustle: In today’s digital age, there are many opportunities for side hustles that fit into your lifestyle and skill set. Popular ones include freelance writing, graphic design and tutoring, among others.
  • Sell your time or skills: Selling your time or skills involves marketing your yourself to potential clients or employers. For instance, a graphic designer can sell their design skills to multiple clients, potentially earning more than in a traditional employment setting.

3. Get Covered By Life Insurance

Life insurance can provide some protection and generate wealth for your loved ones if something happens to you. Life insurance constitutes an agreement between an individual and an insurer, serving as a cornerstone in financial planning.

In this contract, the policyholder, or the insured individual, pays regular premiums. In return, the insurer promises a lump-sum payment, known as the death benefit, to their beneficiaries upon their death. The death benefit acts as a financial safety net, ensuring that the insured’s family maintains financial stability after their passing.

In addition to offering financial security, life insurance can also be a strategic component in an investment portfolio. Certain life insurance policies, such as whole life or universal life, include a cash value component. This cash value can accumulate over time on a tax-deferred basis, augmenting the policy’s worth. 

4. Consolidate 401(k) Plans

A couple in their prime earning years reviewing their consolidated 401(k) plan.

Juggling multiple 401(k) accounts can be challenging, especially if you want to make your retirement savings efficient. Consolidation not only simplifies the oversight of assets but also reduces the potential for lost or forgotten accounts. More importantly, it can provide a broader range of investment options, enabling you to make more informed and strategic investment decisions.

But it’s not just about simplicity and potential savings. Consolidation can also lead to a more effective investment strategy management. You can put all of your money to work together, giving you more dollars to put into specific investment strategies which can help you diversify your risk better and increase your overall return over time.

5. Invest in an IRA

An individual retirement account (IRA) offers tax benefits for retirement savings. It becomes a particularly valuable tool during your prime earning years, which is the period when you’re most likely to have the highest income to save. So, if you are maxing out your employer-provided plans, an IRA could give you another retirement savings outlet.

If you are before your prime earning years, estimating how much an investment can grow over time with compound interest can help you visualize the potential of an IRA as a long-term investment tool. As an example, if you invest $5,000 annually in an IRA from age 25 to 65 with an average return of 8%, you would accumulate over $1.3 million by retirement in that account alone.

6. Work With a Professional

Acquiring professional guidance can bring significant advantages, one of which includes the potential for higher net returns. This potential increase is often attributed to the professional’s expertise in complex financial matters and their ability to provide strategic advice based on an individual’s financial situation and goals.

Choosing a suitable professional who aligns with your financial goals and understands your risk tolerance is key. Factors to consider may include the professional’s credentials, their fee structure and their approach to managing risk. For instance, you may want to work with a certified financial planner (CFP) if comprehensive financial planning is your main need. Moreover, understanding the fee structure, whether it’s a flat fee, a percentage of assets managed or a commission-based fee, can help avoid unwanted surprises down the line.

Bottom Line

A couple enjoying the financial benefits of a robust investment plan during their prime earning years.

Investing from the beginning to the peak of your prime earning years, typically ranging between ages 25-55 and beyond, is an essential part of a smart investment strategy. During these years, your earning potential will often reach its highest at age 40 and older. By maximizing investments early, however, you will have a longer time horizon to secure financial stability.

Investing Tips

  • One of the most important things you can do to reach your investment goals is to work with a financial advisor. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Using a free investment calculator can help you see how your money might grow over time.

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