How to Start Investing in Your 20s for Long-Term Wealth

There are several reasons why it makes sense to learn the best investment ideas in your 20s. This time of your life will include many exciting memories and opportunities that can help shape your future. However, not every investment is worth your time, and many can ultimately cost you money.

The internet is full of sad stories about young investors losing capital or being scammed. Thankfully, you can skip over the guesswork. Here are some of the best investment ideas for young adults seeking to get ahead in life.

Advantages

There are some significant advantages you gain from starting your investment journey in your 20s versus your 30s or later. For one, you will get a decade-long head start. This added time can equate to having double or even triple the funding in your savings and retirement due to the power of compound interest.

Furthermore, you can benefit from long-term investments. Think of someone who bought Coca-Cola shares and held them for 40 years, securing massive returns and dividends along the way. You can also invest in options that carry higher risk than older participants can afford, as you have time to rebound from any short-term losses.

Another advantage of investing in your 20s is flexibility. The majority of investors in their 30s already have families and careers, meaning that they will need to pursue a more passive investment strategy. Conversely, younger investors often have more flexible schedules, enabling them to participate in lucrative investment strategies, including those that might require relocating.

Disadvantages

Some factors will work against you when you’re in your 20s. For one, you lack investing experience. As such, it’s more likely that you can get caught up in your emotions and fall for scams or other investment schemes designed to prey on your lack of knowledge.

Also, you likely aren’t familiar with investor terminology yet. Investors speak “money talk.” This type of speech may seem foreign to outsiders, but for those who have done the research and understand the terms and concepts, it signals to others that you are well-researched, adding confidence to your ventures.

Debt is another issue you may have to contend with. At this age, likely, you don’t have any mortgage debt. However, there’s still student, auto, and credit card debt that you must control. Student debt, in particular, can be a heavy burden that requires your focus to escape.

Another limiting factor is that you likely don’t have a lot of funding or credit. In your 20s, you have amazing business ideas and concepts springing up daily, but it always seems like you can’t find investors to participate. There’s a reason for this lack of participation that you will soon understand.

Start Now, and You’re Going to Win

Regardless of the disadvantages you face, it’s always going to be better to start investing now rather than later. Investing is more than simply placing your funds in a location and hoping for returns. There are lots of factors to consider and much learning that will need to take place to improve your chances of success. Consequently, the sooner you start, the faster you reach the best options.

Source – Hills Bank

Eliminate Your Debt

One of the first steps you should consider is eliminating your debt. Yes, this step isn’t glamorous as it doesn’t involve any chance of securing future returns. However, it does free you up both financially and mentally to participate in better opportunities in the future.

Student loans and other debt can be a drain on your expenses that, over time, can seem like an endless burden. One way to tackle this problem is to make more than your minimum payments. The majority of your debt will have interest payments. As such, paying above the minimum will help ensure that funds go to the actual balance and not just interest.

When discussing eliminating your debt, it can seem like a better option to just keep making minimum payments and use the saved funds towards potential investments. However, this is an immature investment strategy that can lead to bigger problems and debt in the future.

Remember, your investments are not 100% guaranteed. However, the interest on your debt will still need to be paid regardless of whether you succeed or fail in your investment. Consequently, it’s smarter to reduce your monthly debt obligations to controllable levels and not add any more debt prior to making investments.

Investing in Yourself

As you’re paying off your debt, it’s time to start investing in yourself. A very old financial saying is “The fastest way to improve your surroundings is to improve yourself.” Learning is your best friend when in your 20s, and it should remain so until you retire.

The faster you can become familiar with the investment terminology and strategies, the more confidence you will have. Additionally, learning at this young age will allow you to perfect your skills. Those who start learning about trading in their 20s are sure to see definite improvement in their strategies by their 40s.

Learn the Basics of Personal Finance

Remember to not just educate yourself on your investments, but also on the general history of money. You should have a firm understanding of how mankind came to use paper and digital money and how it has changed over the centuries, especially during times of conflict. All of this knowledge will help to build a strong foundation and teach you the terminology of money, enabling you to communicate with other investors more effectively.

Yes, it’s still ok to play video games and have fun, but also find time to balance entertainment with education. Soon enough, you will be skipping over the meme videos to find market news and other topics that can help make you more effective.

Build Your Network

These steps all lead to one of the most important tasks you have in your adult life—building your network. It’s often said that “Your network is your net worth“, and for most investors, this is the truth. In your 20s, you will encounter people in school, business, and your community who have the potential to help you achieve your investment goals. Build these relationships.

Remember, don’t get discouraged when you meet these individuals, and they aren’t overly hype about your investment ideas. They are in a different financial situation that doesn’t require as much risk. Your success with these individuals will be a direct reflection of your knowledge and understanding.

People say it takes money to make money. This statement is partly true, but the more you understand your investment and can explain how the returns will be made and when they will arrive, the less of your own funding will be required.

Start Your Retirement Savings

One of the easiest things you can do in your 20s is to start your retirement savings plan. This step can seem a bit preemptive, but the advantages of starting your savings now versus a decade later are unmistakable. The added decade can result in significant opportunities, like owning a home much sooner.

There are several options for retirement savings. For some, your employer will offer an option like a 401K plan. These options often come with the added benefit of the employer matching your contributions or assisting you.

A better option is for you to research and lay out a personalized retirement plan. This strategy will enable you to combine assets and place less importance on your employer. One of the best pieces of advice for setting up a retirement plan is to diversify your holdings. Here are some suggested investments to add.

Stocks/ETFs

Your retirement portfolio should consist of several different investments, with stocks and ETFs being of particular importance. It’s recommended that around 60-70% of your investments fall into this category. Some of the best options include:

S&P 500

The S&P 500 includes the top-performing 500 US companies. These firms make up around 80% of the US market equity market cap and provide exposure to several industries. Specifically, the S&P 500 includes industry, tech, energy, utilities, real estate, materials, communication, healthcare, and finance.

The S&P 500 outperforms the stock market consistently. For example, the S&P 500 has historically delivered strong long-term performance, with annualized returns close to 10% over multiple decades. While exact figures vary based on the time period measured, it has consistently outperformed many broader market benchmarks. Additionally, the index fund has outperformed many actively managed ETFs and mutual funds as well.

Keenly, this index gets rebalanced on the third Friday of March, June, September, and December. This timing aligns with the quarterly earnings reports. However, there are conditions in which the index will change due to outside occurrences like mergers or delistings.

Disruptive Stocks

You have the advantage in terms of time and risk appetite. As such, it’s smart to focus on emerging tech like blockchain and AI infrastructure stocks. These industries are seen as game changers that are already altering the market landscape.

Renewables are another industry that is sure to see future expansion. This sector falls in line with global accords and environmental concerns. As such, it’s likely to see lots of investment in the coming years and as the tech improves.

The AI sector is another tech option that shouldn’t be overlooked. This technology is getting integrated into nearly every industry. Leaders in this sector, such as major chip manufacturers or software developers, will soon be intertwined in several leading markets, helping to stabilize the sector indirectly.

Battery tech is another smart option to consider. Several firms are seeking to revolutionize this sector, providing more power for EVs, wearables, and other high-tech devices. In the future, battery-powered ships and planes could also drive demand for new tech.

ETFs and Indexes

Exchange-traded Funds (ETFs) and Indexes both provide you with access to a broad range of sectors. These assets include groups of companies or assets, enabling you to enhance your diversity without kicking up the workload.

Many ETFs automatically rebalance, based on a weighted ranking system. These investments make it easier to secure returns as they require less research on your end and can buffer against any one loss in the fund. Here are some popular ETFs worth checking out:

• Vanguard S&P 500 ETF (VOO): This ETF focuses on the top 500 US companies, just like the S&P 500. However, it provides a lower expense rate of just 0.03%.
• Vanguard Total Stock Market ETF (VTI): This fund encompasses the entire US stock market. Uniquely, it includes both large and small-cap options, making it a useful gauge for economic health.
• iShares MSCI World ETF (URTH): This ETF provides access to the top companies and financial managers globally. It includes +1500 companies from 27 developed economies. Like the VTI ETF, this option is seen as a metric to gauge global economic growth.

Blockchain Related Assets

You should also try to hold between 10-20% of your portfolio in blockchain assets. Assets like Bitcoin (BTC -2.93%) have matured enough to be held as reserves by nations. These assets are a smart way to hedge against inflation and other market risks.

Additionally, as more countries and funds hold Bitcoin, it will reduce market volatility across the sector. This volatility reduction will also come from the fact that rebalancing ETF funds will automatically purchase more Bitcoin to maintain their balance.

However, there are still many investors who don’t feel comfortable holding digital assets like Bitcoin yet. For these investors, there are a myriad of new ETF options. These funds will allow you to gain exposure to the market but remain within your investor protection shield. Here are some smart options:

• iShares Bitcoin Trust (IBIT)
• Bitwise Ethereum ETF (ETHW)
• VanEck Digital Transformation ETF (DAPP)
• Fidelity Wise Origin Bitcoin Fund (FBTC)

Digital Assets

As your confidence builds, it will eventually get to the point where you are ready to hold digital assets directly. Thankfully, there are already a lot of young adults involved in the crypto space. This added comfort will pay off in the long run, as holding assets like Bitcoin has proven to be lucrative over the years.

Remember, Bitcoin is only 16 years old. Its value continues to grow alongside demand. Adding reputable cryptocurrencies like Bitcoin to your portfolio is one of the best ways to kick up your ROI potential. However, consider that these assets may have shifting regulations as time progresses.

DeFi Options

Decentralized Finance has opened the door for passive income. Strategies like staking and farming provide you with a way to access rewards. While often lower risk than day trading, be aware that smart contract vulnerabilities and platform insolvency remain potential risks you must consider. DeFi systems continue to evolve, and as time progresses, staking and other methods of obtaining revenue will evolve.

Alternatives

You should also seek out around 10-20% in alternative investments like gold and commodities. Gold has been a consistently smart investment for centuries. However, today you have options in that you can choose to hold the precious metal directly, or obtain ETFs or other investment vehicles to gain exposure to the markets.

Start a Business

Starting a business in your 20s is one of the best ways for you to enhance your understanding and investment skills. There are many low-cost businesses that you can start right away, and the experience you gain will go a long way in guiding your future.

Owning a business provides you with a new perspective that will enable you to communicate more effectively with other business owners, managers, and investors. Notably, it won’t be easy, and most businesses are lucky to make it 5 years. However, even if your first venture fails, the skills you obtain will last a lifetime.

Real Estate

Real estate is by far one of the best investments you can make at any age. While you may seem like a long way away from ever purchasing a house, it’s smart to begin researching the market and terminology. You will soon find that there are several ways to obtain properties and even more ways to transform them into profit machines.

Another advantage of owning real estate so young is that you will gain extra equity. This equity will help you cushion your retirement and can even open the door for other business opportunities, as you can sell your property and reinvest the funding.

Final Thoughts: Why Your 20s Are the Best Time to Start Investing

Investing in your 20s isn’t some impossible task, but rather, it should be something that you’re excited to begin. There are now more options than ever, and unlike previous generations, you have the benefit of unlimited access to information and investor tools. Stick to the tips in this guide, and you are sure to see success as you build the ideal investment strategy.

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