How To Invest In Your 20’s: Financial Advisors Share Their Best Tips

If you’re in your 20’s, you’re probably enjoying the greatest freedom you’ll ever know. Perhaps you’ve graduated from college and moved on to the next stage of your adult life. You’re gainfully employed, yet you may not have a mortgage to cover, a spouse to please, or children to care for.

In a lot of ways, this decade of your life represents an era of carefree wonder – the last decade you’ll have before you take on the traditional roles and responsibilities of other, older adults like your parents.

 

But, if you do things right, your 20’s offer more than a time to explore – they offer the chance to set yourself up for life. While investing in your 20’s may sound boring, starting young is easily the best way to get ahead.

 

Jeff Rose , CONTRIBUTOR

I show GenX’ers how to dominate finances and get more out of life.

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Compound interest is the most powerful force in the universe

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If you’re in your 20’s, you’re probably enjoying the greatest freedom you’ll ever know. Perhaps you’ve graduated from college and moved on to the next stage of your adult life. You’re gainfully employed, yet you may not have a mortgage to cover, a spouse to please, or children to care for.

 

 

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In a lot of ways, this decade of your life represents an era of carefree wonder – the last decade you’ll have before you take on the traditional roles and responsibilities of other, older adults like your parents.

 

But, if you do things right, your 20’s offer more than a time to explore – they offer the chance to set yourself up for life. While investing in your 20’s may sound boring, starting young is easily the best way to get ahead.

 

 

 

8 Smart Investing Tips for Twenty-Somethings

If you’re still young enough to have fun but still ready to lay a foundation for the kind of lifestyle you hope to have in the future, the time to start planning is now. But, where and how should you get started? Here are eight investing tips from top financial planners around the country:

 

Tip #1: Unleash the power of compound interest by investing early.

When you’re in your 20’s, it’s easy to think you have all kinds of time to get your financial life together. You could easily live another 60 or 70 years, right?. What difference will it make if you put off investing for a while?

 

Unfortunately, waiting can make a world of difference. Financial advisor Mitchell Bloom of Bloom Financial, LLC offers this example to illustrate what you’ll miss out on if you wait:

 

Let’s say you invest $300 per month starting at age 20 and don’t stop until you’re 60-years-old. If you managed an 8 percent return during that time, you would have more than $1 million dollars in that account alone. Now let’s say you waited until you were 30 to get started. By the time you reached 60-years-old, you would only have $440,445 in your account. Those first ten years you missed out on would cost you more than $550,000 in returns – even though you only skipped $36,000 and ten years of deposits!

 

This is the magic of compound interest, a phenomenon Albert Einstein once lauded as the eighth wonder of the world. Compound interest is the type of interest you accrue when the interest you earn on your savings or investments begins to compound on itself.

 

“ Compound interest is the most powerful force in the universe ,” says financial planner Jude Wilson of Wilson Group Financial. But, it’s important to note that it’s power comes with time – time you’ll squander if you don’t start investing when you’re young.

 

If you want to be financially free in the future, then you have to harness this power and put it to work. If you don’t, you’ll miss out on gains you can never get back.

 

Tip #2: Consider investing as part of a broader financial plan.

While investing early and often can help anyone in their 20’s begin building wealth, that doesn’t mean investing is the answer to every problem. As Seattle Financial Advisor Josh Brein notes, the best thing any young person can do is consider all aspects of their financial health.

 

Do you have student loans you need to pay off? Credit cards that just keep growing? A spending habit you just can’t contain?

 

If you’re spread too thin financially, and especially if you have a habit of overspending, investing may not be the best choice, notes Brein. “You can’t invest your way out of debt or bad spending habits.”

 

This is why Brein says his best advice for young new clients is to spend less time worrying about the next hot stock and more time worrying about fundamental spending habits, debt, savings, and budgeting. The bottom line: A fully-funded retirement account won’t set you up for life if you’re drowning in debt and don’t have your spending under control.

 

Tip #3: Realize that money is a tool.

If you’re in your 20’s and ready to build wealth, it all starts with recognizing the money you earn is nothing more than a tool, says financial advisor Eric C. Jansen of AspenCross Wealth Management.

 

Instead of thinking of the money you earn as the solution to your problems, think of it as a tool you can use to create the life and lifestyle you want via smart choices regarding spending, savings and investing.

 

“Learning to become a diligent saver and investor early on is the key to being able to live the life you desire,” says Jansen. “While you’re trading your time for money today, in the future you will be able to use your money to give you the time to do more of the things that really matter in life.”

 

With the money you earn as your tool and guide, Jansen suggests dividing your goals into short-term and long-term buckets and choosing investments that will help you reach them. For short-term investment goals like saving for a house, consider conservative investments such as Bank CD’s, Savings or Money Market Funds.

 

For long-term goals like retirement and/or financial independence, you will want to invest more aggressively as you have time on your side to withstand the ups and downs of the stock market, he says.


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