Investment advice for twentysomethings
Investing while you're young can help you get a great head start on your finances. As you know, saving for retirement can be difficult, taking many years of hard work. You might also have other financial goals, such as buying a house or starting a family. Investing in your twenties can help you meet your financial goals without the stress of worrying about having more than one job. In addition, when you invest, you make money because of compound returns.
Compound returns are the amount of money you earn on the money you invested. Over time, your money can grow. While investing carries risk, it is a long-term strategy for helping you earn and save money to supplement your income. Once you start making money on your investments, you'll be glad you did it. The earlier you start investing, the more you can earn. Here's how to invest in your 20s.
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Consider Your Financial Goals
Just like you have fitness goals to help you achieve physical results, you should also have financial goals to have something to work towards. There are short-term and long-term financial goals; then, there are the goals that are in between. Consider all of your investment goals, from buying a car, starting a family, and saving for retirement.
Put Your Money Somewhere
Once you know your financial goals, consider where you can put your money to start investing it based on the length of time you need for the goal.
Immediate financial goals include being able to pay bills on time, purchasing groceries and other necessities. It's typically best to keep this money in your checking account so you can easily pay bills. Keep a cushion of funds in your account just in case an emergency comes up, or your bills change from one month to the next.
Short Term Goals
Your definition of a short-term goal may be different from someone else's, depending on your age. For example, a short-term goal for someone in their early 20s might be to move out of their parent's house, while a short-term goal for someone in their late twenties might be to be able to afford their wedding.
For short-term financial goals, you should choose investment options that allow you to quickly access your funds.
You might consider a high-yield savings account that allows you to earn interest on all of the money you keep in the account for short-term goals. Other types of investments ideal for short term goals are:
- Certificates of deposits (CDs)
- Monkey market accounts
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Long Term Goals
Long-term goals allow you to invest to earn money you'll need in the future, such as twenty years from the time you begin investing. When it comes to your future, there are many great long-term investments, including:
- Stocks and Bonds
- Mutual funds
- Retirement Plans
Types of Retirement Accounts
When you're in your 20's, you might not feel ready to start making high-risk investments. If you're new to investing, it's typically best to go for the lower-risk investment options, including retirement accounts.
Many retirement accounts come with tax advantages, so you won't need to pay taxes on the money you earn. Starting a retirement in your 20s can help you make more money in the long run than someone that starts later in life. As you may know, retirement is expensive, so it's important you begin saving for it as soon as you get your first job.
There are a few different types of retirement accounts, including:
Many employers offer a 401k with a company match, which means the employer will match your contributions into your retirement account up to a certain limit.
Traditional IRAs are tax-deferred retirement plans, which means you won't pay taxes on your contributions right away; instead, you'll pay taxes when you withdraw the money in your account for retirement.
Roth IRAs are funded with the money you've already paid taxes on. If you're in a low tax bracket, a Roth IRA might be the right option for you so you can earn more in the future and save enough for retirement.
Other Investment Opportunities
Of course, you should also be thinking about more than just retirement. Other types of assets you can invest in your 20s are:
Stocks allow you to own a small piece of a company. When you invest, you earn money through appreciation and dividends. Before investing, do your research; stocks can be volatile, and prices fluctuate according to supply and demand.
Bonds are a type of contract that includes you loaning money to a company or the government. You earn money through the interest the company pays you for lending them money. Bonds are not risk-free, but they are less risky than stocks because there is a stated rate of return.
Cryptocurrency is one of the most volatile types of investments, so it's not for investors with low-risk tolerance. However, if you can tolerate the risks involved with crypto, you should never act on impulse.
Tips for Investing in Your 20s
Investing in your 20s can be intimidating. It's up to you to learn as much as you can about an investment opportunity before you use any money. Here are a few tips to help you navigate the complex world of investing:
Consider Your Risk Tolerance
Jumpy investors should avoid high-risk investments like stocks and cryptocurrency. If you panic and act on impulse instead of waiting for the market to pick back up after a drop, you could lose thousands of dollars.
Take Advantage of Employer Retirement Plans
If your employer offers an employer-sponsored retirement plan, take it. Affording retirement is difficult for those who don't have a retirement account earning money throughout the years. If your employer provides a company match, consider investing up to the maximum limit to ensure you can make the most of the free money your account is earning.
There are more investment opportunities than just stocks, bonds, and mutual funds. Depending on how much you want to invest, real estate is another great option for people in their 20s. Luckily, investing in real estate doesn't mean you have to own a property. Instead, you can invest in properties and flip them for a return on your investment.
Consider investing if you want to start earning money without putting in extra hours at work. The earlier you invest, the longer you have to earn money over time.
About the Author
Matt Casadona has a Bachelor of Science in Business Administration, with a concentration in Marketing and a minor in Psychology. Matt is passionate about marketing and business strategy and enjoys San Diego life, traveling, and music.