How To Invest Your Money In Your 20s

Introduction

If you are in your early or mid-twenties then you have probably come across financial advice on investing during this age. This is because this is the age where you are getting your footing in the real world as an adult. In your late 20s, you already have an inkling of what investment is and how you can save for the future. This description is not typed in stone. As such, if you are in your twenties and have never encountered or delved into financial education on investing then do not worry. Most people are advised to invest in their twenties because you have more time before retirement which equates to more time for your investment to grow. Additionally, during this age you have higher flexibility in testing which investment options work for you and which do not. This is the age when you can explore higher risk investment because it’s a common assumption you can still regain the time and money lost or invested in higher risk investment options. 

The options listed in this article are some of the best ways to invest money in your 20s. This is because the selected options are based on the consideration of your employable years coupled with common retirement needs. This is an installment in your investment by age series. You can check out our article on Assets to buy in your 30s that provides an ultimate guide into investing in your thirties. In this article, we will discuss how to invest money in your 20s in a range of risk options that will help you safeguard your future financial stability.  These are some of the best investments for 2021. The options listed below also take into account the possibility of an inflation or economic crisis as such they are also cited as the best investments during inflation.

S&P 500 Index Funds

Young investors are often advised to build their investment portfolio on growth-oriented assets. This is because of the aforementioned assumption of longer working time where you can take advantage of compounding of higher rates of return on growth investments. The S&P 500 index are growth assets that come with an approximated annual returns of 10%. You might be afraid of investing in the stock market because of the current pandemic that has increased uncertainty in investing in stocks. However, you can view this as an advantage and buy into these stocks whilst they are being sold at low prices. It is evident that the world may not return to normal after this pandemic. Nevertheless, you should bank on the continuity of commerce and its affiliated elements. Additionally, in your twenties you still have time to work towards your financial goals. It is important to note that this type of stocks are often categorized as moderate-to-high risk stocks.

Open a Retirement Plan

Most people in their twenties often do not think of popening retirement funds. Why should you think of your old age when you are still so young? However, investing for your retirement at an early age comes with a number of advantages including an early start at growing a more lucrative retirement benefit saving and tax deferrals. Additionally, beginning to save at this young age will afford you the opportunity of retiring early. Depending on which retirement investment plan you choose, you will have access to a range of tax deferral plans that can help you have higher disposable income. We have a detailed guide on the most common retirement plans and the tax benefits that come with each. The guide, titled Traditional 401(k) vs Roth 401(k) will provide you with an overview of the tax benefits that come with the most common retirement saving plans. 

Real Estate Investment Trusts (REITs)

Real estate investments are growth assets that can prove vital in improving and enlarging your financial portfolio. One way to venture into real estate is through Real Estate Investment Trusts (REITs) that are an alternative for directly buying real estate. REITS offer investors opportunities to buy stocks in real estate. One of the advantages of REITS is the ability to buy from a diversified portfolio of real estate assets which helps spread the risk. REITs are often considered some of the most profitable investment options because of moderate risk and because the real estate market often moves independently from the stock market. 

Skills

Skills improvement is always a viable investment option. Most people do not consider skill improvement as a viable investment option. However, personal development, particularly new skill acquisition, will help you advance your career and get more opportunities. For instance, choosing to gain a new skill in programming which can be gained online can help you get lucrative job offers as a software programmer. This job position comes with less restrictions and a high paycheck with some programmers working from the comfort of their homes. Other skill investments include financial literacy that can help you make better investment and money management choices. In this new digital era, you can access a range of skill and personal improvement courses online on sites like Udemy and eDX. 

Invest Using a Robo Advisors

Robo Investors are a good way of investment management and financial advisory. These automated solutions offer a low-cost solution to investors by providing digital advice on investment opportunities based on mathematics and other financial algorithms. Additionally, Robo advisors can manage your online investment portfolio by making investment choices based on your financial status and preference. Additionally, you can use Robo accounts for either a taxable investment account or a retirement account. The only requirement is to register with the account, fund it, and monitor your investment portfolio. 

Buy Fractional Shares of a Stock or ETF

Fractional shares have made it possible for people to buy portions of shares. For instance, let’s say you want to purchase tesla stock or apple stock. However, you do not have enough money to buy a complete share as these stocks can be quite pricey. In the above instance, a tesla stock goes for approximately $705.67 and apple stocks go for $132.69 at the moment of publishing this article. In this instance, you can use services like Motif Investing that allows you to purchase a fraction of these shares to improve and diversify your portfolio. ETFs or exchange-traded funds also allow for the building of investment portfolios at low amounts. This is quite useful for beginner investors as it enables you to progressively save towards your future. 

Buy a Home

Owning a home is one of the optional investment options that can be procured at later dates. This is because the viability of this investment option largely depends on a number of factors including the state where you reside in and any other financial burdens or bills that you have to pay. For instance, buying a home in a state with high property taxes in your twenties will create more tax burdens that may end up messing up your future financial stability. On the other hand, properties in such high tax states often come with higher appreciation values which means that your property will increase in value over a number of years. Owning private property can help improve your asset portfolio.  

Treasury Bills

Treasury bills are short-term financial obligations backed by governments. These bills are regarded as low-risk because they often mature in one year and have relatively low returns on investment. These bills are often sold in denominations of $1000 and can reach $5 million. The returns on these bills are largely dependent on the maturity date. The longer the maturity date of the bill, the higher the returns. One of the advantages of investing in these bills is tax exemption. This is because the interest gained from such bills is exempt from state and local income taxes. 

Debentures and Bonds

Debentures and bonds are good investment options for young investors because of high returns. Debentures are considered high risk because they are unsecured notes that come with fixed interest rates and repayment amounts. This means that you do not have any guarantee of payment. When choosing the best debentures to invest in it is important to note that those that come from companies or organizations with higher rates of returns often come with higher risks. This means that the company or organization does not have a good debt repayment history. Some of the risks associated with debentures include interest rate risk where the fixed rates exclude the investors from better rates, credit default risk where the borrower may default on the payment, and liquidity risk where investors do not have access to their investment fund in case they need an early exit. In all sense, all debentures are bonds, but not all bonds are debentures. Bonds are fixed income instruments that take the form of loans made from investors to the borrower and issued by companies and securitized as tradable assets. Bonds come with fixed income securities and are publicly traded. If you hold the bond to maturity you are able to get all your principal back.  

Conclusion

In conclusion, investing during your 20s is a good way of safeguarding your future. Time is your greatest asset at this age, use it wisely. The above mentioned assets are just some of the viable options that can help you improve and diversify your financial portfolio.