How to Invest Your 401(k) Money if You're 30 Years Old

If you're 30 years old (or close to age 30), you're at a unique stage of life as an investor. You're still in the early days of your career; you have (hopefully) several decades ahead of you to work, save, invest, and watch your money grow.

One important choice you need to make in your first days as an investor is how to invest your money. This is also called "asset allocation." Deciding on your asset allocation helps determine where your investment dollars go -- into stocks, bonds, or other investment options.

There's no one right answer for asset allocation in your 401(k), but there are a few general frameworks you can use. Let's look at a few easy ways to invest your 401(k) money as a 30-year-old investor.

1. Use a target date retirement fund

One of the simplest ways to invest for retirement in a 401(k) is to use a target date retirement fund. This fund is a "set it and forget it" option that automatically invests your cash into a broad mix of stocks and bonds, based on your "target date." Most 401(k) plans will offer target date retirement funds.

For example, if you're 30 years old in 2024, let's say that you want to retire at age 67 (your Social Security retirement age). So your "target date" should be 2061 or so. (It seems far away, but the time goes fast!) The Fidelity 2060 Freedom Fund is a good example of a target date retirement fund that could be appropriate for many 30-year-olds. This fund invests in a mix of 90% stocks (including 56% U.S. stocks and 34% international stocks), and 10% bonds.

With a target date retirement fund, you get diversification (you own lots of little pieces of lots of companies, rather than putting all your eggs in one basket). You also get an age-appropriate mix of stocks and bonds. People who are age 30 (or younger) should generally feel confident about investing most of their retirement savings in stocks -- because you have many years ahead of you for that money to grow and earn dividends, even if the stock market loses value in the short run.

Target date retirement funds also give you peace of mind with a hands-off approach to investing. The 401(k) plan's fund manager (such as Fidelity, Vanguard, Charles Schwab, the Principal Financial Group or another investment firm) does the work for you. Over time, as you get closer to retirement, your target date fund will gradually rebalance itself automatically, by selling some stocks and buying more bonds. Your investments should get "less risky" as you get closer to retirement age.

2. Invest mostly in stocks

If your 401(k) provider does not offer a target date retirement fund, that's OK -- you can replicate that investment strategy for yourself. As a young investor with 30-plus years of career growth (and compounding interest) ahead of you, at this moment of your life, you should likely feel confident to invest most of your retirement cash into stocks.

Your 401(k) money is not emergency savings, and ideally you won't need that cash anytime soon; every dollar in your 401(k) is locked up for long-term investing. You can't pull that money out (without possible penalties or special circumstances) until you're 59 1/2. You're sending your 401(k) contributions on a long journey across decades. So you can afford to be patient with that money. And you can afford to take some short-term, calculated risks by investing most of it in stocks.

There's an old rule of thumb that the percentage of your money invested in stocks should be 100 minus your age. So if you're 30 years old, 70% of your retirement money should be invested in stocks (and 30% bonds). If you feel more comfortable with "only" 70% of your retirement cash being invested into stocks, that's fine. But many 30-year-olds might want an even more aggressive asset allocation, like 90% stocks/10% bonds, or even 100% stocks.

There are short-term risks from being 100% invested in stocks. The stock market could go down, like in February-March 2020, when the S&P 500 lost over 30% in one month. But if you're young, if you want your money to grow as much as possible for the long run, boosting your percentage of stock investments could be a smart move for your future self.

3. Invest in a 60/40 portfolio

Does a 70% stock/30% bond portfolio still feel too risky? If so, that's OK too. The point of retirement investing is not to impress strangers, it's to help you build wealth for the future while also being able to sleep at night today. Another option for investing your 401(k) money is a tried-and-true strategy called the 60/40 portfolio -- 60% stocks and 40% bonds. Having a higher percentage of bonds in your retirement savings can help protect you from the short-term risks of the stock market. Sometimes when stocks go down, bonds go up. Plus, bonds deliver steady income in the form of bond yields. (But keep in mind, bonds are not risk free. Bond prices can also go down in the short run, like they did in 2022.)

Bottom line

Whatever asset allocation you choose for your 401(k) as a 30-year-old, the most important thing is to keep saving money. Keep buying stocks with every paycheck. Keep earning your employer 401(k) match. The investments you make right now are going to be some of the most valuable dollars you ever invest -- because you have decades ahead of you for your money to grow.