As a 20-something young adult, investment can sometimes seem foreign, especially if you’re not sure where to start. Expert investors and market leaders all suggest that starting sooner than later is one of the best decisions a young adult can make during their 20s.
As of 2019, around 47% of Americans were not investing any of their money, whether it be in bonds, mutual funds, real estate, or perhaps the stock market. Being financially independent is something a lot of us are after, and the alarming statistics only reveal how little advantage American adults are taking of the available investment opportunities.
In the digital and connected world, anything is seemingly possible, and when it comes to building your fortune, the picture does not change that much either. There are various paths one can take to create wealth, or build a retirement portfolio, but during your 20s, your options may be a bit limited, as you want to minimize your risks, while maximizing your returns.
Here’s a look at the eight easiest investment paths you should consider during your 20s.
Create Attainable Saving & Investment Goals
Before you can start investing and setting up savings portfolios, you should at least have some sort of goal or plan. Creating goals that are both attainable and realistic will help you budget better, but also make it clear whether your investments should be short-term or long-term.
When investing for the short term, some experts suggest that you keep most of these cash investments, or perhaps a mutual fund that gives quarterly payouts. There’s also the option of maybe setting up a savings account with your bank, which allows for easier access when you need it the most.
On the other hand, long-term goals, those that may involve paying off student loans, buying your first house, or even saving for retirement, one should be looking to place money in high-yielding or compounding investments.
For long-term investments, perhaps having a mix of stocks, bonds, forex, or perhaps digital assets can help increase your savings portfolio. Creating an investment strategy that exposes you to riskier stock or bond options could just be the boost your portfolio may need.
Start with a 401 (k)
Young employees, especially those in their 20s and 30s have realized that starting sooner than later with their 401 (k) is like missing out on free money.
A range of investment leaders and business economists have found that a 401 (k) savings plan will not only be a financial benefit, but you can maximize it by matching employee contributions before looking for second or third investment opportunities.
Currently, individuals under the age of 50-years can contribute around $19,500 of pre-tax investments into their 401 (k). Contributions will grow tax-deferred until they will be withdrawn during retirement.
When matching employer contributions, employees can start saving a lot more for their retirement or perhaps for a rainy day, and maximizing these contributions, while compounding each year, and increasing limits as your salary grows is only becoming more and more prevalent among younger employees.
When investing your money, or perhaps saving up for retirement, time is the most important factor that can help grow financial returns. During your twenties, now is better than later, and when it comes to investments, saving up for the future can grow a lot better, and bigger if you start earlier.
The sooner you start, even if it’s investing in index stocks or commodities, or setting up an Individual Retirement Account (IRA), the easier it will become to achieve your financial goals earlier on in your life.
Not only is savings and investments a good idea for someone who’s looking to pay off student debt, or perhaps make a large purchase in the coming years such as a house or new car – having that extra safety net during financial uncertainty can help give support when you need it the most.
Start an Individual Retirement Account
There are a lot of positives behind setting up a traditional IRA, especially if you’re a young investor or someone who looks to save up for their retirement. An individual retirement account works similar to that of a 401 (k), but contributions are pre-taxed and are not taxed when you withdraw them.
The great thing about IRAs is that it’s designated to individuals who meet certain income requirements, and as of 2021, the requirements were that your gross income must be less than $140,000 for a single filer.
For someone in their twenties, who’s not yet enrolled in an employer-sponsored retirement plan, an individual retirement account uses the power of compounding to grow your contributions over the years.
What makes IRAs so appealing, is that funds are available to be withdrawn, and any money you put into an IRA is pre-tax – meaning you won’t need to pay or owe the IRS anything when you are ready to withdraw it for retirement.
There are not a lot of retirement plans such as these that carry so many different benefits, but more importantly to consider, is that IRAs are designed for individuals with lower gross income, meaning anyone who meets the requirements can start an IRA.
While contributions to investments and retirement funds are extremely important, consider charging up your personal savings account with monthly contributions. Having a diversified amount of contributions and savings plans helps you secure a better financial future.
Setting up a personal savings account is not only easy but in most instances, these services are offered for free by your local bank.
When setting up a savings account, you can create debit orders which automatically go off each month when you receive your salary. Additionally, you can ask the bank or financial institutions to help you boost your monthly or annual interest, and ask for advice on investing and diversification.
A savings account may be one of the easiest, and most traditional ways of investing, but with the advent of technology, and digital assets, these savings accounts have become a bit limited in their capabilities. Overall, having hefty savings can put you up for new opportunities of using and seeing your money a lot differently.
Exchange-traded funds and Index Funds
Trading on the public market has become more common in recent times since the advent of technology and software. Nowadays, nearly anyone can have access to the stock market in a matter of seconds with the help of a mobile app or digital platform via their computer.
With an exchange-traded fund or ETF, you might have some less risk involved, as the fund itself copies the performance of the stock market. With an index fund, such as the S&P 500, you will be able to purchase stocks and shares directly from the company via a brokerage or a trading platform.
While trading on these markets can yield high returns, experts and veteran traders suggest that newcomers and those who have little knowledge of the stock market should do their homework first before making any purchases.
It may take a bit of time to get the hang of how these markets work, and which companies perform the best. Instead, investors would have to allocate a portion of their investment towards a designated company before taking the leap and venturing out into new avenues.
Invest in a startup
Startups are now more common than ever before, as more and more Americans are leaving their permanent jobs to start their own businesses. With the growing demand for innovative companies, and solution-based concepts, entrepreneurs or startup owners are constantly looking for investors that will help fund their innovations.
If you’re considering taking this path, there are different ways that you can go about it. The first is investing in a new startup via a crowdfunding platform such as SeedInvest or Wefunder. These platforms give you access to a variety of startups that require seed funding during their primary stages.
The second path, which might make a bit more sense, is investing in a friend or family member’s small business. It comes with the added risk that in case the business fails, you might not be able to make back your investment.
Investing in a startup or perhaps a small business will not only help others grow their entrepreneurial ventures, but in the long run, you’ll be able to grow your investment alongside the business.
Purchase Real Estate
Having a second home, or perhaps owning a piece of land that could later be developed into something lucrative has for decades been one of the best ways to grow your financial investments.
With purchasing real estate comes a lot of challenges, and property regulations, and if you’re not financially secure enough – you might struggle at first.
Even with the current economic market, and housing prices that have been soaring in recent months, property has become a valuable asset, and early investors are now reaping the benefits.
At first, you might need to consider the various implications that go along with buying property, such as taxes, maintenance costs, home-owner fees, and insurance. Plus, if you do rent it out, having an agent that deals with the entire process, and paying commission fees will also make a dent in your rental return.
Although this might not be the easiest route to take, it’s still very much possible, even for young adults who are looking to grow their investment portfolios and diversify their strategies.
Starting your investment journey from a young age is becoming more commonplace among young adults, as technology as the software allows for easier access to new opportunities and market options.
Setting a goal before you start investing is the very first step you should take. From this point of view, you will be able to build a strategy and investment plan that will help you better understand the various aspects of your financial situation and what investment options suit you best.
Having an investment strategy, especially from a young age, helps you save up for those times you need it the most. From paying off student loan debt to planning for retirement, investing during your young adult years will help you build your financial future.