5 Advantages of Investing in Your 20s (2024)

FAQs

5 Advantages of Investing in Your 20s? ›

Many investments, such as those made in dividend stocks,1 can provide an income stream throughout the life of the investment. Twenty-somethings have some definitive advantages over those who wait to begin investing, including time, the ability to weather increased risk, and opportunities to increase future wages.

Many investments, such as those made in dividend stocks,1 can provide an income stream throughout the life of the investment. Twenty-somethings have some definitive advantages over those who wait to begin investing, including time, the ability to weather increased risk, and opportunities to increase future wages.

One reason why investing in your 20s is so important is that you're looking at a very long term, which allows you to capitalize on all that growth. Bonds can be generally lower-risk, lower-return investments that can counter the risk of stocks.

Setting aside some money in your 20s can allow you to do so much later in life. That could mean saving up for a vacation, renovations for your house or even helping fund your children's education.

In this system, not only does your initial investment generate earnings, but your reinvested interest will also start working for you over time. Put another way, a dollar saved early in your life is worth more in retirement than a dollar saved later in your life because it would generate more interest over time.

Early Investing Helps You Develop Better Spending Patterns

And creating a budget is the ideal approach to changing your spending patterns since it allows you to track how much money you spend each month on things like food, utilities, rent, fun activities, etc.

Higher discount rates naturally equate to lower equity valuations. One simplistic measure of this is Peter Lynch's Rule of 20. This suggests that stocks are attractively priced when the sum of inflation and market P/E ratios fall below 20.

Note that past returns do not indicate future success. Of course, a portfolio of mostly stocks is generally seen as more risky, but 25-year-olds are often said to have a larger risk tolerance since they have more time to weather market dips and recover after losses.

What are the 4 reasons for investing? ›

The advantages of the stock market include capital appreciation, dividend payouts, portfolio diversification, liquidity, and co-ownership in companies. The stock market also has disadvantages, including high risk, volatility, high brokerage on trading, companies going bankrupt, etc.

Facts and figures aside, your 20s are the time in your life when you learn how to be an adult. You'll get a job, make friends, pay bills, take care of yourself, have relationships, and generally gain an understanding of what those previous two decades were trying to teach you about life.

How much money should I save in my 20s? Most financial planners recommend saving three to six months' worth of salary in an emergency fund, as well as putting 15% of your monthly pay into a retirement fund. Building up to both of these is a good target for your 20s.

Small amounts will add up over time and compounding interest will help your money grow. $20 per week may not seem like much, but it's more than $1,000 per year. Saving this much year after year can make a substantial difference as it can help keep your financial goal on your mind and keep you motivated.

1 – Never lose money. Let's kick it off with some timeless advice from legendary investor Warren Buffett, who said “Rule No. 1 is never lose money.

If you put off investing in your 20s due to paying off student loans or the fits and starts of establishing your career, your 30s are when you need to start putting money away. You're still young enough to reap the rewards of compound interest, but old enough to be investing 10% to 15% of your income.

Where should I be financially at 25? ›

Alice Rowen Hall, director of Rowen Homes, suggests that “individuals should aim to save at least 20% of their annual income by age 25.” For example, if someone is earning $60,000 per year, they should aim to have $12,000 saved by the age of 25.

The Bottom Line

Putting aside $25 a month to invest in a savings account, mutual fund, or individual retirement account is a worthwhile venture. However, pay extra attention to make sure profits counteract fees. The offers that appear in this table are from partnerships from which Investopedia receives compensation.

No matter your age, there is never a wrong time to start investing. Let's take a look at three hypothetical examples below. For these examples, everyone invests $57.69/week with a 7% growth rate and has an annual salary of $30,000. Ashley started contributing early at 21 but stops at age 35.

Beginning investors statistics

The average age when a person starts investing is 33.3, according to a 2021 study by robo-advisor Personal Capital. According to a 2021 study by Charles Schwab, 15 percent of all investors got their start in 2020.

Investors must know you, like you, and trust you before they will fund you. And they are looking for what I call the three Cs in a business founder: character, confidence, and coachability.

Note: This is one of five blogs breaking down the Four Cs and a P of credit worthiness – character, capital, capacity, collateral, and purpose.

Safety, income, and capital gains are the big three objectives of investing.

Stocks typically have potential for higher returns compared with other types of investments over the long term. Some stocks pay dividends, which can cushion a drop in share price, provide extra income or be used to buy more shares.

Stocks can be a valuable part of your investment portfolio. Owning stocks in different companies can help you build your savings, protect your money from inflation and taxes, and maximize income from your investments.

What are the pros and cons of investing in stocks? ›

Investing in the stock market can offer several benefits, including the potential to earn dividends or an average annualized return of 10%. The stock market can be volatile, so returns are never guaranteed. You can decrease your investment risk by diversifying your portfolio based on your financial goals.

The Rule of 25 is a potentially useful way for you to get a sense of how much money you will need to save to have a financially secure retirement. The rule states that if you save 25 times of what you want your annual salary to be in retirement, that you can stretch that money for 30 years.

The 20s are a time of transition and change, and this can be a difficult and stressful time for many people. The pressure to succeed in career, relationships, and finding a sense of identity can take a toll on mental health. Many young adults experience feelings of anxiety and depression during their 20s.

There's angst, discovery, unpredictability and a sense of self-realization. It's the time we truly leave childhood behind and enter a whole new world of responsibility. It's also a time that demands quick decisions about careers, relationships, finances and a lot more.

Is $20,000 a Good Amount of Savings? Having $20,000 in a savings account is a good starting point if you want to create a sizable emergency fund. When the occasional rainy day comes along, you'll be financially prepared for it. Of course, $20,000 may only go so far if you find yourself in an extreme situation.

Of "young millennials" — which GOBankingRates defines as those between 18 and 24 years old — 67 percent have less than $1,000 in their savings accounts and 46 percent have $0.

Saving 20 dollars a day adds up to about $600 a month or $7,300 each year! Save $7300 for 20 years compounded at 5% and you'll have $253,450—over a quarter of a million dollars! That's quite a result for small, painless changes you can start making right now.

Is it normal to struggle financially in your 20s? ›

Most people, even in their mid-to-late 20s are still struggling to establish themselves. That can be hard to do if your job isn't paying you enough, you're struggling to make rent, have no savings, and are being crushed by debt.

According to a 2019 CNBC income survey, the average 20- to 24-year-old makes $30,628 annually, while the average 25- to 34-year-old makes $43,524 annually. Averaging the two gives $37,076, a healthy starting point. That equates to about $3,000 in gross income a month before taxes.

Starting early is a major advantage.

In your 20s, and even your 30s, your biggest asset is time. Even when you're just investing in retirement savings, nothing can make up for the effect of compound interest. Also, if you lose money in the market, you'll have more time to make it back before you need it.

Many companies match retirement plan contributions and setting aside at least enough to earn the full match can make a big difference in your account's growth. Then, work toward saving 10%-15% of your income (including any employer match) for retirement.

Alice Rowen Hall, director of Rowen Homes, suggests that “individuals should aim to save at least 20% of their annual income by age 25.” For example, if someone is earning $60,000 per year, they should aim to have $12,000 saved by the age of 25.

Average Savings by Age 25

The Federal Reserve doesn't provide a specific metric for savers in their 20s. Instead, it compiles savings information for Americans under 35. The Fed's most recent numbers show the average savings for the age group that includes 25-year-olds is $11,250. The median savings is $3,240.

If you are between ages 25-29, the average is $49,388 and the median is even further behind at $7,512. If you are between the ages of 30-34, the average net worth is $122,700 and the median net worth is $35,112. Between the ages of 35-39, the average is $274,112 and the median is $55,519.

Nevertheless, there are two simple ways investors in their 20s can start making investments early in life. The first of these is enrolling in the Employees Provident Fund (EPF) to start saving for retirement as soon as one starts earning. The other is to start a Systematic Investment Plan (SIP) in a Mutual Fund.

And only 26% of people start investing before the age of 25. But the math is simple: it's cheaper and easier to save for retirement in your 20s versus your 30s or later. Let me show you. If you start investing with just $3,600 per year at age 22, assuming an 8% average annual return, you'll have $1 million at age 62.

Is it better to save or invest? ›

In general, you should save to preserve your money and invest to grow your money. Depending on your specific goals and when you plan to reach them, you may choose to do both. “When deciding whether to save or invest your money, it is essential to prioritize determining when you will need it,” says Maizes.

Your 20s can be a great time to take on investment risk because you have a long time to make up for losses. Focusing on riskier assets, such as stocks, for long-term goals will likely make a lot of sense when you're in a position to start early.

Is $20,000 a Good Amount of Savings? Having $20,000 in a savings account is a good starting point if you want to create a sizable emergency fund. When the occasional rainy day comes along, you'll be financially prepared for it. Of course, $20,000 may only go so far if you find yourself in an extreme situation.

1,821,745 Households in the United States Have Investment Portfolios Worth $3,000,000 or More.

Share: You should generally save between $6,000 and $12,000 before moving out. You'll need this money to find a place to live inside, purchase furniture, cover moving expenses, and pay other bills. You'll also want to have enough money saved up for an emergency fund before moving out.