How To Start Investing In Your 20s

Congratulations on entering your professional life! Now that you made it, how should you start investing in your 20s?

Your twenties are a crucial time to learn the right habits that will follow throughout the rest of your life. Although you have the whole world ahead of you, you also have no better time to maximize your returns by investing now and enjoying the benefits of compounding returns.

Start Investing A Lot, Early

Once you leave your childhood, you have an incredible opportunity to define your adulthood. It’s very easy to find stuff to buy with the new money you’re making – the only problem is, there will always be more stuff to have.

Instead of spending the money, make sure to pay yourself first. Set a high threshold to save, and you’ll never know you’re missing that money.

Over enough time, all of your investing in your 20s will become an incredible nest egg. Keep saving based on our hierarchy of savings, and you’ll realize the same benefits.

Maximize Your Tax Savings Through 401k & IRA

Taxes are the single largest wealth destroyer – the more money you can save tax free, the more you will save in taxes.

Retirement accounts such as your 401k, IRA, and Roth IRA allow you to save taxes from capital gains and dividends. The funds grow tax-free until your retirement. Furthermore, your 401k and IRA can even reduce your total taxable income.

Invest In Yourself

Investing in yourself is easily one of the most profitable investments you’ll ever make. The sooner you make these investments, the more you will reap those rewards throughout your career.

There are several ways to invest in your mind and body, and doing so will yield exponential returns.

• Develop your skills – advance your education, take trainings, and continue learning
• Keep learning – through reading and experience
• Nurture your body – by staying active and eating healthy

Financial Advisors Are A Rip Off

Wealth management is a slimy industry – their costs make no sense, and they rarely offer value. While we recommend investing in your 20s as soon as you can, we do not recommend working with them.

The median cost for a financial advisor is 1% of your assets, which means your financial advisor gets a great payday as you grow your net worth. They will argue that this pricing aligns their incentives with growing your net worth, but doing that is their job. Do you pay your accountant a percentage of your tax deductions? Or do you pay more for lunch that doesn’t make you sick? This logic makes absolutely no sense.

A financial advisor’s goal is to sell – sell more assets under management, sell more clients, and sell more services. Don’t fall under their spell.

Robo Advisors Are Excellent

Robo advisors are a great way to get the professional help of a financial advisor, without their insane cost structure. In addition, you won’t have to deal with anybody trying to sell you more stuff!

Robo advisors can automatically track your net worth, analyze your investment portfolios for excessive fees, and can analyze your investments for the right asset allocation. Finally, they are as easy to access as going to a web browser or downloading an app!

Health Savings Accounts (HSAs)

Make sure to maximize your Health Savings Account, especially while you’re young.

Not only will HSAs minimize your taxes, they will also give you compounded growth to help pay for future medical expenses. Your twenties will likely be your healthiest, so take advantage of it by saving money now, which can be used in the future. Your future self will thank you for it.

Don’t Pay Off Your Student Loans Early

Student loans have incredibly low interest rates, so there is no reason to pay them off early. You will earn substantially more by investing that money in stocks or real estate.

With that said, there may be times where it makes sense to pay loans off early. Some examples include your risk tolerance, your student loan interest rates, and the valuation of alternatives like stocks or real estate. While there are exclusions, these are exceptions to the rule.

Investing In Your 20s – The Bottom Line

Congratulations on entering your professional life – now that you are here, it is crucial that you start investing in your 20s.

The more you invest now, the sooner you can realize your financial independence. Compounding returns are an incredible thing, and now is the perfect time to realize those benefits while building the right habits for the rest of your life. Good luck!