If you plan to retire in your 40’s or just want to live a comfortable life after retirement, you shouldn’t avoid to start investing in your 20’s. By investing when you are still young, you will have ample time to test out different high-risk-high-yield investments. Depending on the investment opportunities you grasp, you will be able to comfortably retire when you are 40.
It is always advisable to start early as compounding returns can give handsome returns at the end. What this means is that the earlier you start investing, the more money you can make from your investment.
If you don’t have enough time to start today, start as soon as possible and invest whatever amount is easily available to you. Never stop yourself from investing just because your monthly income doesn’t allow you to invest big.
Why should you consider investing in your 20’s in the first place?
Before we look at how to start investing in your 20s, let’s look at some of the top reasons why you should even consider investing at a young age. Here are the top 5 reasons;
1. You have time on your side:
When you are in your 20’s, you have many years left to invest. You are financially free after retirement, even if you start investing in your 30s. Being in your 20s allows you to enjoy the power of compounding returns for a more extended period. The sooner you begin saving, the more money you will earn when invested over a while.
2. You have the energy to work hard:
Your 20s are perhaps the best time to invest as you do not have other financial responsibilities like buying a house or other elderly commitments. Also, you might be in your high earning potential during this decade and can put your money to better use by investing.
Since you will have a lot of free time, you can even take a second job which means more earning potential.
3. You won’t have too many responsibilities:
During your 20s, you are just at the beginning of your career. You most probably have not yet formed any serious financial obligations. This gives you the liberty to divert some of your income towards investing for a better future.
Once you reach your 30’s, you will probably have responsibilities such as rent, bills, kids, etc. And that might prevent you from diverting money towards your financial goals.
4. Compounding can do its magic:
The sooner you start saving, the more time your money gets to work for you. Compounding returns are powerful enough to multiply your investment many times over when invested early.
So if you start investing in your 20’s and retire in your 50’s or 60’s, imagine the amount of money you will have accumulated from your small investments.
5. You can take calculated risks:
In your 20s, you have the best time to take calculated risks, as this is the time when any financial stress hasn’t yet bogged you down. This decade brings a lot of positive changes along with it, which can act as an added advantage while investing.
How to start investing in your 20s?
Now that you know why you should consider investing at a young age let’s see how to start investing in your 20’s. There are the steps you should consider taking to start investing:
Step 1. Choose a goal:
Setting up goals is one of the most important steps to take when you start investing. Without goals, it is difficult to set out on a path towards your financial goals.
Goals help you make decisions for your investments and money in general. So the first step before you start an investment is to decide on your goal. You can choose from debt reduction, retirement, or buying a house, among others.
Step 2. Formulate a proper investment plan:
After choosing your goal, the next step is to create an investment plan. An investment plan should include all the information regarding how you will achieve your goals for investing.
This plan should include the amount of money you are going to invest, on what date, or at what rate of interest you plan to invest, etc.
Step 3. Accumulate the amount of money you want to invest:
Once the goal is set, and the investment plan is in place, you should start to accumulate money for your goals. This can be done by regularly diverting a part of your income towards your investments.
Investing early also gives you more time to allow your money to grow, so it’s better if you can invest as much as you can.
Step 4. Choose the right investment option:
There are many different ways to invest your money. You can put it in a bank account, stocks, real estate, among other things, for better returns. So make sure that the type of investment you choose will help you achieve your goals on time without compromising on anything else.
Step 5. Start researching:
Once you have chosen the right investment option for your goals, it’s time to start researching. Now that you are in your 20’s, you can surf the internet and choose from a wide range of investment options.
You can compare different types of investments based on their returns, fees involved, etc., once you do some research online.
Step 6. Find a reliable broker:
Once you have researched and found the best investment option, it is time to find a reliable broker. A broker can help you make investments from your end without any hassles, as all you need to do is provide them the money for investing.
These days there are so many online brokers who can help you choose the best investment options while keeping your fees to a minimum.
Step 7. Diversify your investment portfolio:
To lower your risks and remain protected against any fluctuations in the market, it is better to diversify your investment portfolio. You can invest in different asset classes such as equities, debt instruments, and real estate, among others.
Diversifying your investment portfolio will help you get a good return. Even if some investments don’t perform well, the other investments will offset the loss.
Step 8. Keep investing and reinvesting:
As time goes on, you should keep investing and reinvesting your money as the returns will help to increase your overall investments. If done continuously over a long period, this can turn out to be a great way to boost your wealth and achieve your goal quickly.
7 Things to consider before you start investing in your 20’s:
There are certain things you should consider before you start investing in your 20’s:
1. Keep your goals realistic:
You are not going to become rich magically. Growing your money through investments requires time and patience. So make sure that you keep your goals realistic as it will motivate you to stay focused and invest regularly.
2. Be patient:
Investing is not going to make you rich overnight. It requires a lot of patience and the willingness to wait for a good return over a long period. When investing, one should have an exit strategy in place to avoid any unnecessary risks.
3. Follow experienced investors:
Whether it is on social media or going to their seminars, it is better to follow experienced investors. These experts have been investing for longer periods, and they know what works and what doesn’t. They won’t make you buy any crappy investments but will help you choose the best options depending on your goals.
4. Keep an eye out for market fluctuations:
You should keep an eye out for market fluctuations and try to invest when the markets are bullish. This will help you choose the best investment options and stay protected against any sort of risks.
Another tip on keeping an eye on the market is investing when there is a market crash. Usually, assets are undervalued at this time. You can easily make some good gains in a short while when the market bounces back.
5. Keep your debts under control:
Investing regularly is very important. However, it is also equally important to keep your debts under control while investing. Having any sort of debt on your head will only add to the problem and make it more challenging to achieve your goals on time.
6. Keep things slow:
It is understandable that in our 20’s we are very excited about reaching our long-term goals quickly. However, it is important that you keep things slow and don’t take unnecessary risks to avoid any sort of losses.
Taking things slow will not only make you a patient investor, but it will also enable you to earn more money in the long run.
7. Stay away from scams:
It is not surprising that scams are everywhere these days, but you should only invest your money if you are sure of the investment. Some investments can turn out to be scams, so you must stay away from them and keep a close eye on the market rates before making any sort of move.
If you don’t know how to check scammy investment opportunities, get help and advice from a professional investor.
Follow these tips to start investing in your 20’s and get a decent return for a long period. Suppose you take your time to learn about the market and invest regularly. In that case, you can easily double or triple your investment within a few years.