As a young adult in your twenties, investing can sometimes seem foreign, especially if you don’t know where to start. Expert investors and market leaders all suggest that getting started as early as possible is one of the best decisions a young adult can make in their 20s.
In 2019, about 47% of Americans didn’t invest any of their money, whether in bonds, mutual funds, real estate, or perhaps the stock market. Being financially independent is something many of us seek, and the alarming statistics only reveal how little American adults are taking advantage of the investment opportunities available.
In the digital and connected world, anything seems possible, and when it comes to building your fortune, the situation doesn’t change all that much either. There are different paths to building wealth or building a retirement portfolio, but during your 20s your options may be a little limited as you want to minimize your risk while maximizing your returns.
Here’s a look at the eight easiest investment paths you should consider in your 20s.
Create achievable savings and investment goals
Before you can start investing and building savings portfolios, you need to at least have some sort of goal or plan. Creating goals that are both achievable and realistic will help you budget better, but also clarify whether your investments should be short-term or long-term.
When investing for short term, some experts suggest that you keep most of these investments in cash, or perhaps a mutual fund that pays out quarterly. There’s also the option of setting up a savings account with your bank, allowing for easier access when you need it most.
On the other hand, long-term goals, those that may involve paying off student loans, buying your first home, or even saving for retirement, look to put money into investments. high yield or compounds.
For long term investments, maybe having a mix of stocks, bonds, currencies or maybe digital assets can help increase your savings portfolio. Creating an investment strategy that exposes you to riskier stock or bond options might just be the boost your portfolio could need.
Start with a 401(k)
Younger employees, especially those in their 20s and 30s, have realized that starting sooner rather than later with their 401(k) is like running out of 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 researching. a second or third investment opportunity.
Currently, people under age 50 can put about $19,500 of pre-tax investments into their 401(k). Contributions will grow tax-deferred until withdrawn during retirement.
By matching employer contributions, employees can start saving a lot more for retirement or maybe for a rainy day, and maximize those contributions, while accumulating each year, and increasing limits to as your salary increases, becomes more and more prevalent among younger employees.
do not wait
When investing your money, or perhaps saving for retirement, time is the most important factor that can help increase financial returns. During your twenties, it’s better now than later, and when it comes to investments, saving for the future can grow much 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 be for you to reach your financial goals sooner in the future. your life.
Not only are savings and investments a good idea for someone looking to pay off student debt, or perhaps make a major purchase in the years to come, such as a house or a new car – having this net of extra security during financial uncertainty can help provide support when you need it 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 looking to save for retirement. An Individual Retirement Account works similar to a 401(k), but contributions are pre-taxed and not taxed when you withdraw them.
The great thing about IRAs is that it’s for people 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 20s who isn’t yet enrolled in an employer-sponsored retirement plan, an Individual Retirement Account uses the power of compounding to increase your contributions over time.
What makes IRAs so appealing is that funds can be withdrawn and any money you put into an IRA is pre-tax – meaning you won’t need to pay or owe anything. to the IRS when you are ready to withdraw it for retirement. .
There aren’t many retirement plans like these that offer so many different benefits, but the most important thing to consider is that IRAs are designed for people with lower gross incomes, which means that anyone who meets the conditions can start an IRA.
Although contributions to investments and retirement funds are extremely important, consider funding your personal savings account with monthly contributions. Having a diverse amount of contributions and savings plans helps ensure a better financial future.
Setting up a personal savings account is not only easy, but in most cases these services are offered free of charge by your local bank.
When creating a savings account, you can create debit orders that are automatically triggered each month when you receive your salary. In addition, you can ask the bank or financial institutions to help you increase your monthly or annual interest and seek advice on investment and diversification.
A savings account may be one of the simplest and most traditional ways of investing, but with the advent of technology and digital assets, these savings accounts have become somewhat limited in their capabilities. Overall, having big savings can give you new opportunities to use and see your money in very different ways.
Exchange Traded Funds and Index Funds
Public market trading has become more common lately since the advent of technology and software. Nowadays, almost anyone can access the stock market in seconds using a mobile app or digital platform through their computer.
With an exchange-traded fund or ETF, you might have less risk because 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 buy stocks and shares directly from the company through a brokerage or trading platform.
Although trading in these markets can yield high returns, experts and seasoned traders alike suggest that newcomers and those with little knowledge of the stock market should do their homework first before making any purchases.
It may take some time to understand how these markets work and which companies perform best. Instead, investors should allocate a portion of their investment to a designated company before taking the leap and venturing into new avenues.
Invest in a startup
Startups are now more common than ever as more Americans leave 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 to help fund their innovations.
If you’re considering going this route, there are a number of ways you can go about it. The first is to invest in a new startup through a crowdfunding platform like SeedInvest or Wefunder. These platforms give you access to a variety of startups that require seed funding in their early stages.
The second way, which might make a little more sense, is to invest in a friend or family member’s small business. This carries the additional risk that if the business fails, you may not be able to recoup your investment.
Investing in a startup or perhaps a small business will not only help others grow their businesses, but in the long run, you can grow your investment alongside the business.
Buy real estate
Having a second home, or perhaps owning land that could later turn into something lucrative, has been one of the best ways to grow your financial investments for decades.
Buying real estate comes with many challenges and real estate regulations, and if you are not financially secure enough, you may struggle at first.
Even with the current economic market and house prices skyrocketing in recent months, real estate has become a valuable asset, and early investors are now reaping the benefits.
At first, you may need to consider the various implications that come with buying a property, such as taxes, maintenance costs, landlord fees, and insurance. Plus, if you rent it out, having an agent handle the whole process and paying commission fees will also put a dent in your rental return.
While it may not be the easiest route to take, it’s definitely possible, even for young adults looking to grow their investment portfolios and diversify their strategies.
Starting your investment journey at an early age is increasingly common among young adults, as technology like software allows easier access to new market opportunities and options.
Setting a goal before you start investing is the very first step to take. From this perspective, you will be able to build an investment strategy and plan that will help you better understand the different aspects of your financial situation and the investment options that are best for you.
Having an investment strategy, especially from an early age, helps you save for when you need it most. From paying off student debt to planning for retirement, investing during your young adult years will help you build your financial future.
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