How to invest in your 20s
At the start of your career, a lot is going on. You have other priorities, and it can be easy to overlook having a financial plan that includes investing for the future. But starting your investment journey now can reap significant rewards.
Getting a head start on investing means you can take advantage of compound interest and long-term growth, but you should make sure you’re fully informed before starting your investment journey.
In your 20s and wondering how to invest your hard-earned cash? Here’s how you can get started:
1. Establish your priorities
Before you look into any investment opportunities, weighing up your financial goals and priorities is essential.
Here are some questions you need to ask:
How much can you set aside each month after you’ve paid for your rent or mortgage, bills, essentials, and other living expenses?
What are your financial goals over the next few years? Maybe you want to save up for a car, a big holiday, or you plan on getting married.
What are your longer-term goals? Whether you’d like to save a house deposit or children are on the cards, these goals will impact your investment strategy.
How much risk are you prepared to take on?
Do you need easy access to your money?
2. Pay off your debt
Being in debt can be stressful, but you must have a plan to manage it. Whether you’ve accumulated credit card debt or taken out a loan, prioritize paying this off before investing.
Paying off debt early means you can save on interest payments, which may help boost your credit rating, making it easier to secure better deals if you need to borrow in the future.
3. Start or review your Roth 401(k)
Retirement may still be decades away, but setting up a retirement savings account is essential – be it an employer-sponsored 401(k) or your own IRA. The key here is to start making regular contributions.
Not only do you benefit from tax relief, but for your 401(k), your employer also pays into it. The earlier you start saving for retirement, the more money you’ll have when the time comes. Start now is an effective way of maximizing your money.
4. Build an emergency fund
A long-term financial strategy is a great idea, but it’s always worth having some money saved up for emergencies.
Whether your laptop breaks, your car needs repairs, or you suddenly lose your job, having a financial buffer aside can help you avoid a tricky situation.
It’s typically recommended that you save between three and six months' worth of expenses for emergencies. Ideally, an emergency fund should be easy to access with no withdrawal penalties.
5. Consider a savings account
Once you’ve cleared any debt and got an emergency fund sorted, it might be worth putting extra cash into a savings account with a decent interest rate to boost your returns.
6. Do your research
It’s worth speaking to an independent financial advisor who can review your options if you’re considering investing in stocks and shares.
When you’re new to investing, avoiding excessive risk is essential. Specialist advice can help with this.
Before you invest in a company, look carefully at its financial health. Some online platforms and apps analyze and compare stocks according to different criteria before you choose which ones to invest in.
7. Take a long-term long view
Any investments should be made from a long-term view.
Starting to make regular investments when you’re in your 20s can reap significant returns over a decade or more, thanks to the effect of compound interest.
You may lose some value in your investments during a difficult market, but the longer you invest, the longer you have to ride out any volatility.
Ideally, you should expect to invest for at least a few years before withdrawing your money.
8. Diversification is key
Spreading your investments across different asset classes, such as stocks, government bonds, corporate bonds, and property funds, minimizes exposure to excessive risk.
A financial advisor can help you build a diverse portfolio and an investing plan. Reviewing your portfolio regularly is important to ensure it aligns with your financial goals.
Ready to start investing?
It’s clear that it’s never too early to put a solid financial plan in place. But whether you want to cut your debt, save for a rainy day, or invest in the stock market, the best thing you can do is seek expert advice.
Unbiased works with regulated financial advisors; we can match you with one in your local area. Just fill in a few details, and someone will be in touch when we have a match.
Senior Content Writer
Lisa-Marie Voneshen is a Senior Content Writer at Unbiased. She is an award-winning journalist with nearly a decade of experience writing and editing content across various areas, including personal finance and investing.