Best Funds to Buy in Your 30s and 40s

How to Invest With the Best Types of Mutual Funds in Your Middle Years

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The best mutual funds to buy in your 30s and 40s are those that are meant for long-term investing. Pick solid mutual funds. Add money to them regularly. Then, watch them grow for the next 30 to 40 years. There's really not much more to smart long-term investing than sticking to these time-tested saving and investing practices and taking advantage of compound returns.

Benefits of Mutual Funds

By the time many people reach the age of 30, they have either started investing for retirement or are seriously thinking about it. There is no one-size-fits-all investment strategy for anyone, but there is no doubt that mutual funds are one of the best investment types for savers of all kinds. Here are some of the reasons mutual funds can be best for middle-aged investors:

  • Simplicity: Investors in their 30s and 40s typically don't have large nest eggs or complex financial needs yet. They may be too busy to learn more about investing. Follow the KISS rule: Keep It Simple, Stupid!
  • Diversification: Mutual funds hold dozens or hundreds of securities, such as stocks and bonds. You can get started with one fund or easily build a diversified portfolio with just a few funds.
  • Accessibility: There is very little money or financial skill needed to buy mutual funds. You can find low-cost funds and start investing for as little as the cost of a share. These funds don't require a broker or advisor to buy. All you need are money and a few minutes to open an account.

Mutual funds are not just for people starting to get serious about investing, They are also used by professional money managers and expert investors around the world.

Best Fund Types

People in their 30s and 40s still have at least 20 to 30 years before retiring, so they are long-term investors. All investors should be aware of their own investment goals and risk tolerance, but the longer you have until you need your money, the more aggressively you can invest. You have time to rebound from losses. Here are the basic types of funds that middle-aged investors are wise to consider:

Target Date Funds

These funds invest in a mix of stocks, bonds, and cash. They change their asset allocation as they get closer to the target dates. When the target date nears, the fund manager will decrease market risk by shifting assets out of stocks and into bonds and cash, which is what an individual investor would do. Target date mutual funds are a type of "set it and forget it" investment.

Suppose you think you may retire in 25 years. One good choice for you might be Vanguard Target Retirement 2045 (VTIVX).

Balanced Funds

Also called "hybrid funds" or "asset allocation funds," these are mutual funds that invest in a balance of stocks, bonds, and cash. The allocation usually remains fixed and invests according to a stated investment objective or style. For instance, Fidelity Balanced Fund (FBALX) has an asset allocation of about 68% stocks, 30% bonds, and 2% cash. This is considered a medium-risk or moderate portfolio.

S&P 500 Index Funds

Index funds can be great places to begin building a portfolio of mutual funds, because most of them have the lowest expense ratios. They give you lots of stocks in many industries in just one fund, which helps you quickly develop a low-cost, diversified mutual fund. S&P 500 index funds follow the 500 largest public companies in the U.S.

Sector Funds

For those middle-aged investors with relatively large nest eggs—such as $1,000,000 or more—a fully diversified portfolio might consist of a few broadly diversified index funds. It's worth thinking about adding sector funds to the mix. They focus on industrial sectors of the economy, such as healthcare, technology, or utilities. When investing in sectors, you don't want to allocate too much to one sector. Use two or three sector funds, and allocate around 5% of your portfolio to them.

Where to Buy Mutual Funds

You can buy mutual funds from virtually any fund company or brokerage firm that offers them. You can use a no-load mutual fund company that does not charge commissions. Consider mutual fund companies that have a wide range of mutual fund categories and types. You will need to keep building your portfolio for diversification. Some of the best no-load mutual fund companies are Vanguard Investments, Fidelity, and T. Rowe Price.

Frequently Asked Questions (FAQs)

What are the best low-cost investments?

If you prioritize low-cost options, you'll want to seek out passive investments like index funds. Actively managed funds usually come with higher costs, and passively managed fund fees can drop as low as 0%.

What is the advantage of starting to invest as early as possible?

Investing early allows you to benefit from compounding gains. Your profits in one year are used to create more profits in the next year. The longer you let your investment sit, the more compounding you'll enjoy.

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal.

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