7 Investing Terms to Know Before You Turn 30

This image may contain Human Person Face Clothing Apparel and Female
Photographed by Kourken Pakchanian, Vogue, June 1972

In the same way that by 30, as a responsible human, you will routinely write thank-you notes and apply sunscreen every morning, as a smart, well-equipped woman you should feel comfortable with the most important investing terms.

If your 20s were about getting your general budgeting in order, your 30s will be about taking your finances to the next level.

One caveat: read no further if you have yet to kick off the most important investment of all, putting your maximum contribution in your retirement accounts. If you have a 401K, put in as much as you can—$18,000, if that’s available to you. In addition, we can all put $5,500 as of 2018 into an IRA, for a total of $23,500. The majority of the country isn’t doing this, and it’s a safe place to start before you move on to the world of investing.

Once that’s done, here’s the terminology to review before you talk to a financial planner.

1. Asset allocation. This, put simply, is where you’re putting your money. Your portfolio (your various investments) may include stocks, bonds, cash or cash equivalents (like certificates of deposit). Deciding how much to put where depends on several factors, including your tolerance for risk and your time horizon (how soon you might need your money).

2. Stocks. Everyone’s heard of these. Stocks (or equities or shares) are ownership in a company. When we talk about risk, stocks tend to be the riskiest option, because market fluctuations can cause their value to drop. The flip side? That same fluctuation could move your stocks’ value in your favor, so they also have the biggest potential for return on your investment. How much of your money you put into stocks depends on your tolerance for that risk. Maybe, for example, you have robust savings, or you don’t need your money for several years. In those cases, potential dips in value won’t affect you as profoundly. But if you’re buying an apartment soon, and need a large sum for a down payment, this risk might not be for you. A good rule of thumb is The 5 Year Rule: If you won’t need your money for that amount of time, then investing in the market is an option you could consider.

3. Bonds. You may also hear these called fixed-income securities. When you buy bonds, you’re lending money—usually to a company or to the government—and receiving interest off of that amount. The return tends to be lower than stocks, but then, so is the risk.

4. Cash. In investment-speak, cash usually refers to CDs, or Certificates of Deposit. These are super-charged savings accounts that offer low rates for short-term periods.

5. Rebalancing. This is a shift in your asset allocation—maybe you’d like to move more money into bonds, or increase your stock holdings. A good portfolio is about balance, and a financial advisor can help steer you in a good direction here.

6. Mutual funds. Instead of investing in one or two stocks and managing those yourself, a mutual fund allows you to spread your investment out over several stocks and bonds. The idea is that it reduces risk, and makes it super simple for the average investor to get on board. The expectation is that you’d hang onto a mutual fund for a length of time.

7. Exchange-Traded Funds and Index Funds. An ETF is a fund that’s traded on a stock exchange. An index fund is a group of stocks, like the S&P 500. You may have heard of that one. I love these because they have lower costs, generally speaking. And while the difference in fees between these and mutual funds may sound small, over a long time, those differences can add up to big money.

All this said, remember that the core of investing is savings. The more money that you’re saving, the more you can invest, and the faster it can grow—it’s that simple.


Trending Stories on Living:

  • Why Milwaukee Is the Midwest’s Coolest (and Most Underrated) City - Read More
  • The Kenyan Cool Girl’s Guide to Nairobi - Read More
  • Is Princess Charlotte the Brightest Star of the British Royal Family? - Read More
  • The Best Celebrity Wedding Moments in Vogue - Read More
  • Stylist Lolita Jacobs’s Effortlessly Chic Wedding in the South of France - Read More