Investing as a young adult is one of the most important things you can do to prepare for your future. You might think that you need a lot of money to start investing, but it’s easier than ever to get going with small amounts. Once you set up your investment accounts, you’ll be well on your way to saving for goals like retirement, purchasing a home or even future travel plans.
But before you dive headfirst into the market, it’s important to prioritize paying off any high-interest debt that might be straining your finances and then build up an emergency fund with savings that could meet at least three to six months of expenses.
Once that is handled you can get a jump on investing, even if you’re starting small. Developing a consistent approach to saving and investing will help you stick to your plan over time.
How to start investing in your 20s
Money invested in your 20s could compound for decades, making it a great time to invest for long-term goals. Here are some tips for how to get started.
1. Determine your investment goals
Before you dive in, you’ll want to think about the goals you’re trying to achieve by investing.
“It’s ultimately looking at all the experiences you want to have over your lifetime and then prioritizing those things,” says Claire Gallant, a financial planner at Commas in Cincinnati. “For some people, maybe they want to travel every single year or they want to purchase a car in two years and they also want to retire at [age] 65. It’s crafting the investment plan to make sure that those things are possible.”
The accounts you use for short-term goals, like travel, will differ from those you open for long-term retirement goals.
You’ll also want to understand your own tolerance for risk, which involves thinking about how you’ll react if an investment performs poorly. 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.
Once you’ve outlined a set of goals and established a plan, you’re ready to look into specific accounts.
2. Contribute to an employer-sponsored retirement plan
20-somethings who begin investing through an employer-sponsored tax-advantaged retirement plan can benefit from decades of compounding. Most often, that plan comes in the form of a 401(k).
A 401(k) allows you to invest money on a pre-tax basis (up to $22,500 in 2023 for those under age 50) that grows tax-deferred until it’s withdrawn in retirement. Many employers also offer a Roth 401(k) option, which allows employees to make after-tax contributions that grow tax-free, and you’ll pay no taxes when taking withdrawals during retirement.
Many companies also match employees’ contributions up to a certain percentage.
“You always want to contribute enough to at least get that match, because otherwise you’re just walking away from more-or-less free money,” Gallant says.
But the match might come with a vesting schedule, which means you’ll have to stay at your job for a certain amount of time before you’ll receive the full amount. Some employers allow you to keep 20 percent of the match after one year of employment, with that number steadily increasing until you receive 100 percent after five years.
Even if you can’t max out your 401(k) right away, starting small can make a huge difference over time. Develop a plan to increase contributions as your career progresses and income climbs higher.
Bankrate’s 401(k) calculator can help you figure out how much to contribute to your 401(k) in order to build up enough money for retirement.
3. Open an individual retirement account (IRA)
Another way to continue your long-term investment strategy is with an individual retirement account, or IRA.
There are two main IRA options: traditional and Roth. Contributions to a traditional IRA are similar to a 401(k) in that they go in on a pre-tax basis and are not taxed until withdrawal. Roth IRA contributions, on the other hand, go into the account after-tax, and qualified distributions may be withdrawn tax-free.
Investors younger than age 50 are allowed to contribute up to $6,000 to IRAs in 2022, but that number will jump to $6,500 in 2023.
Experts generally recommend a Roth IRA over a traditional IRA for 20-somethings because they’re more likely to be in a lower tax bracket than they will be at retirement age.
“We always love the Roth option,” Gallant says. “As young people make more and more money, their tax bracket is going to increase. They’re paying into those funds at that lowest tax rate today, so that when they retire they can take that money out without tax.”
Ross Menke, a certified financial planner at Mariner Wealth Advisors in Sioux Falls, South Dakota, advises investors of any age to consider their personal situation before making a decision. “It’s all dependent on when you want to pay the tax and when it’s most appropriate for you based on your personal circ*mstances,” he says.
4. Find a broker or robo-advisor that meets your needs
For longer-term goals that aren’t necessarily retirement-related, like a down payment on a future home or your child’s education expenses, brokerage accounts are a great option.
And with the advent of online brokers such as Fidelity and Schwab, as well as robo-advisors like Betterment and Wealthfront, they’re more accessible than ever for young people who may be starting out with little money.
These companies offer low fees, reasonable minimums and educational resources for new investors, and your investments can often be made easily through an app on your phone. Betterment, for example, charges just 0.25 percent of your assets each year with no minimum balance or 0.4 percent for their Premium plan, which requires at least $100,000 in your account.
Many robo-advisors simplify the process as much as possible. Provide a bit of information about your goals and time horizon and the robo-advisor will choose a portfolio that matches up well and periodically rebalances it for you.
“There’s a lot of good options out there and each of them have their own specialty,” Menke says. Shop around to find the one that best fits your time horizon and contribution level.
5. Consider leveraging a financial advisor
If you don’t want to go the robo-advisor route, a human financial advisor can also be a great resource for beginning investors.
While it is the more expensive option, they’ll work with you to establish goals, assess risk tolerance and find the brokerage accounts that best fit your needs. They can help you choose where to direct the funds in your retirement accounts as well.
A financial advisor will also use their expertise to steer you in the right investment direction. While it’s easy for some young investors to get caught up in the excitement of daily market highs and lows, a financial advisor understands how the long game works.
“I don’t believe investing should be exciting, I think it should be boring,” Menke says. “It shouldn’t be seen as a form of entertainment because it is your life savings. Boring is okay sometimes. It’s coming back to what your time frame is and what your goal is.”
6. Keep short-term savings somewhere easily accessible
Like your emergency fund, which you may need to access at a moment’s notice, store your short-term investments somewhere easily accessible and not subject to market fluctuations.
While they won’t earn as much as money you put into equities, savings accounts, CDs and money market accounts are great options.
“If you need the money available in a couple years, then it shouldn’t be invested in the stock market,” Menke says. “It should be invested in those more secure vehicles like a CD or money market where, yes, you might be giving up some potential growth, but it’s more important to have the return of your money instead of a return on your money.”
7. Increase your savings over time
Establishing a savings amount that you can stick to and having a plan to increase that over time is one of the best things you can do in your 20s.
“Committing to a specific savings rate and continuing to increase that year after year is what’s going to have the biggest impact early in your savings career to get you started,” according to Menke.
By starting this habit in your 20s, you’ll make it easier on yourself as you get older and won’t have to worry about taking extreme savings measures later to meet your long-term financial goals.
Investment options for beginners
- ETFs and mutual funds. These funds allow investors to purchase a basket of securities at a fairly low cost. Funds that track indexes such as the are popular with investors because they easily provide broad diversification for fees that are close to zero. ETFs trade throughout the day like a stock does, while mutual funds can only be purchased at the day’s closing net asset value (NAV).
- Stocks. For your long-term goals, stocks are considered one of the best investment options. You can buy stocks through ETFs or mutual funds, but you can also pick individual companies to invest in. You’ll want to thoroughly research any stock before investing and be sure to diversify your holdings. It’s best to start small if you don’t have much experience.
- Fixed income. If you’re a more risk-averse investor, fixed-income investments such as bonds, money-market funds or high-yield savings accounts can allow you to ease your way into the investment landscape. Fixed-income securities are generally less risky than stocks, though you’ll also earn lower returns. These investments can still end up losing value, however, thanks to rising interest rates or elevated inflation.
Diversification is key
One way to limit your risk in investing is to make sure your portfolio is adequately diversified. This involves making sure you don’t have too many eggs in one or similar baskets. By maintaining diversification, you’ll be able to smooth out your investing journey and hopefully make it more likely that you can stick to your plan.
Remember that investments in stocks should always be made with long-term money, which allows you to have a time horizon of at least three to five years. Money that could have a short-term use is better invested in high-yield savings accounts or other cash management accounts.
Ready to get started?
Begin your investment journey by thinking through what your short-term, intermediate and long-term goals are, and then find the accounts that best fit those needs.
Your plans will likely change over time, but getting started with at least a retirement account is one of the most important things you can do for yourself in your 20s.
Not only will you ensure your money keeps up with inflation, but you’ll also reap the benefits of decades’ worth of compound interest on your contributions.
Note: Kendall Little wrote the original version of this story.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.
FAQs
No matter how old you are, the best time to start investing was a while ago. But it's never too late to do something. Just make sure the decisions you make are the right ones for your age—your investment approach should age with you.
How should a 20 year old start investing? ›
How to start investing in your 20s
- Determine your investment goals. ...
- Contribute to an employer-sponsored retirement plan. ...
- Open an individual retirement account (IRA) ...
- Find a broker or robo-advisor that meets your needs. ...
- Consider leveraging a financial advisor. ...
- Keep short-term savings somewhere easily accessible.
No matter how old you are, the best time to start investing was a while ago. But it's never too late to do something. Just make sure the decisions you make are the right ones for your age—your investment approach should age with you.
Is investing $20 a week worth it? ›
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.
How much should you invest in your 20s? ›
How much you should be saving in your 20s
| Age | How much to invest annually |
|---|
| 20 | $2,250 |
| 22 | $2,660 |
| 24 | $3,150 |
| 26 | $3,700 |
4 more rowsFeb 24, 2023
$20,000 can be an incredible foundation upon which to build a decent nest egg for the long haul. If you can invest it early enough in your career and the market returns to its historical long-run return rates, that one investment on its own can be enough to make you a millionaire retiree.
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.
Can I retire at 45 with $1 million dollars? ›
Achieving retirement before 50 may seem unreachable, but it's entirely doable if you can save $1 million over your career. The keys to making this happen within a little more than two decades are a rigorous budget and a comprehensive retirement plan.
How to save $1 million dollars in 20 years? ›
Given an average 10% rate of return on the S&P 500, you need to save about $1,400 per month in order to save up $1 million over 20 years.
How much money do I need to invest to make $500 a month? ›
Dividend-paying Stocks
Shares of public companies that split profits with shareholders by paying cash dividends yield between 2% and 6% a year. With that in mind, putting $250,000 into low-yielding dividend stocks or $83,333 into high-yielding shares will get your $500 a month.
$500 per month invested for 20 years is about $430,000. $500 per month invested for 30 years is about $1,400,000. $500 per month invested for 40 years, is about $4,300,000.
What if I invest $20,000 a month for 10 years? ›
If an investor invests 20,000 per month for 10 years at the interest rate of 12%, he will be able to generate INR 47 lakh, i.e., more than double the amount he earned in the first five years. In addition, the earnings in 15 years will double the income that an investor had generated in the first 10 years.
How much is $40 a week for a year? ›
$40 weekly is how much per year? If you make $40 per week, your Yearly salary would be $2,080.
How do beginners invest? ›
Best investments for beginners
- High-yield savings accounts. This can be one of the simplest ways to boost the return on your money above what you're earning in a typical checking account. ...
- Certificates of deposit (CDs) ...
- 401(k) or another workplace retirement plan. ...
- Mutual funds. ...
- ETFs. ...
- Individual stocks.
We calculated that assuming an investor gets a 3% annual return on his or her assets, he or she would need to invest $1,720 every month for thirty years in order to attain $1 million, starting with a $1,000 initial investment. $100,004,764 would have been earned by the end of the thirty years.
What is the average wealth of 20s? ›
Average net worth by age
| Age by decade | Average net worth | Median net worth |
|---|
| 20s | $84,926 | $6,999 |
| 30s | $260,090 | $38,343 |
| 40s | $693,583 | $140,159 |
| 50s | $1,257,943 | $312,890 |
4 more rowsBased on an investment of $25,000 today, it'd take a return of 13.08% per year to transform into $1 million in 30 years. If you require a shorter time to grow your investments, you'll need a higher return to arrive at $1 million sooner.
How to flip $1,000 in a week? ›
Whatever case, if you're looking for ways to flip $1,000 dollars, this is the post for you.
- Buy And Resell Clothing. ...
- Buy & Sell Collectibles. ...
- Start An Online Business. ...
- Amazon FBA. ...
- Invest In Real Estate. ...
- Invest In Dividend-Paying Stocks & ETFs. ...
- Stake Crypto. ...
- Rent Out Assets.
Investing as little as $200 a month can, if you do it consistently and invest wisely, turn into more than $150,000 in as soon as 20 years. If you keep contributing the same amount for another 20 years while generating the same average annual return on your investments, you could have more than $1.2 million.
What is the top 1 income for 25 year olds? ›
How Does Income Change with Age?
| Age Range | Top 10% | Top 1% |
|---|
| 20-24 | $71,268 | $149,663 |
| 25-29 | $105,884 | $205,660 |
| 30-34 | $146,609 | $254,529 |
| 35-39 | $185,297 | $430,664 |
7 more rowsJan 17, 2023
Even in this age group, the average net worth by age is skewed toward the high end. 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.
What is the 50 30 20 rule? ›
One of the most common types of percentage-based budgets is the 50/30/20 rule. The idea is to divide your income into three categories, spending 50% on needs, 30% on wants, and 20% on savings. Learn more about the 50/30/20 budget rule and if it's right for you.
Can I retire at 60 with 500k? ›
The quick answer is “yes”! With some planning, you can retire at 60 with $500k. Remember, however, that your lifestyle will significantly affect how long your savings will last.
Is 2 million in 401k enough to retire? ›
Yes, for some people, $2 million should be more than enough to retire. For others, $2 million may not even scratch the surface. The answer depends on your personal situation and there are lot of challenges you'll face. As of 2023, it seems the number of obstacles to a successful retirement continues to grow.
Can I retire at 50 with 300k? ›
Can I retire at 50 with $300k? The problem with having a $300,000 nest egg, as opposed to $500,000 or $1 million, is that retiring early isn't as viable an option. At age 50, you'll have to stretch that $300,000 out further, so it will be important to find an investment with a high return.
How many people have $3,000,000 in savings? ›
1,821,745 Households in the United States Have Investment Portfolios Worth $3,000,000 or More.
Can 2 million dollars last a lifetime? ›
How long will $2 million last? The short answer is, most likely it will last you comfortably for the rest of your life. The longer answer is, even with no growth of any kind this nest egg will last an average household around 35 years.
How much will $1 million dollars be worth in 10 years? ›
That would translate into $5,000 of interest on one million dollars after a year of monthly compounding. The 10-year earnings would be $51,140.13. The rates on both traditional and high-interest savings accounts are variable, which means the rates can go up or down over time.
What if I invest $300 a month for 5 years? ›
But if you wait even five years to start saving that $300 a month, you'll end up with roughly $719,000, instead. To be clear, that's still a respectable amount of savings to kick off retirement with. But let's face it -- it's not $1 million.
Is investing $100 a month good? ›
Investing $100 a month gives you the chance to make regular progress toward your financial goals. Sticking to a regular commitment can help you build wealth over time. If you are ready to invest $100 a month, your returns will vary based on your investment choices.
Saving $1,500 a month is an excellent goal to have. It can help you build up your savings and put you in a better financial position for the future. Having this amount of money saved each month can give you more flexibility when it comes to making decisions about spending or investing.
Is investing $25 a month worth it? ›
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.
What if I invest $100 a month for 10 years? ›
But by depositing an additional $100 each month into your savings account, you'd end up with $29,648 after 10 years, when compounded daily.
How much will I have in 30 years if I invest $1,000 a month? ›
How Much Investing $1,000 Per Month Pays Long-Term. The precise amount you'll have after investing $1,000 monthly at 6%, a conservative number depending on what you choose to invest in, for 30 years is $1,010,538, as figured by SmartAsset's free online Investment Calculator.
How much will $200 K be worth in 10 years? ›
After 10 years: $96,049.
How much do I need to save to be a millionaire in 10 years? ›
Here it's important to understand that the longer we have to save and grow our money, the less we have to save each month to reach our goal. If we want to become a millionaire in 10 years, we would need to save about $6,000 per month.
How much do I need to invest to be a millionaire in 15 years? ›
How to become a millionaire in 15 years. To become a millionaire in 15 years, you'll need to put aside $34,101 per year for 15 years while earning an average return of 8%.
How much is $20 a week for 1 year? ›
$20 weekly is how much per year? If you make $20 per week, your Yearly salary would be $1,040.
How much is $20 a week for 40 years? ›
If you start this saving plan now, in 40 years (at 5 percent annual rate of return on your savings) you'll have $131,900! That's what you'll have from saving just $20 a week. Why are you waiting? Let time work for you and start saving today!
How much is $3 a week for a year? ›
$3 weekly is how much per year? If you make $3 per week, your Yearly salary would be $156.
3 Penny Stocks That Are Poised to Explode in 2023
| ABEV | Ambev | $2.91 |
|---|
| NOK | Nokia | $4.03 |
| EGY | Vaalco Energy's | $3.69 |
May 15, 2023
Before you make any decision, consider these areas of importance:
- Draw a personal financial roadmap. ...
- Evaluate your comfort zone in taking on risk. ...
- Consider an appropriate mix of investments. ...
- Be careful if investing heavily in shares of employer's stock or any individual stock. ...
- Create and maintain an emergency fund.
Here are nine top ways to invest $1,000 and the key things to know about them.
- Buy an S&P 500 index fund. ...
- Buy partial shares in 5 stocks. ...
- Put it in an IRA. ...
- Get a match in your 401(k) ...
- Have a robo-advisor invest for you. ...
- Pay down your credit card or other loan. ...
- Go super safe with a high-yield savings account.
9 Steps To Become a Millionaire in 5 Years (or Less)
- Create a Plan.
- Employer Contributions.
- Ask for a Raise.
- Save.
- Income Streams.
- Eliminate Debt.
- Invest.
- Improve Your Skills.
In order to hit your goal of $1 million in 10 years, SmartAsset's savings calculator estimates that you would need to save around $7,900 per month. This is if you're just putting your money into a high-yield savings account with an average annual percentage yield (APY) of 1.10%.
How to become rich in five years? ›
How to become wealthy in 5 years: 14 strategies
- Become Financially Literate Through Self-Education.
- Spend Less, Earn More, Invest the Difference.
- Do Something You Love.
- Invest in Properties.
- Build a Portfolio of Stocks and Shares.
- Focus on Contemporary Areas of Growth.
- Be An Innovator, don't just paint by numbers.
From age 18-24, only 1% of earners (7% altogether) earn $100k per year or more. This makes these age groups by far the lowest earners in the US. Americans make the most income gains between 25 and 35. Only 2% of 25-year-olds make over $100k per year, but this jumps to a considerable 12% by 35.
What salary is upper middle class? ›
Many have graduate degrees with educational attainment serving as the main distinguishing feature of this class. Household incomes commonly exceed $100,000, with some smaller one-income earners household having incomes in the high 5-figure range.
How can I build wealth in my mid 20s? ›
How to Grow Wealth as a Young Adult
- Start a Budget. Starting a budget is the foundation for creating wealth. ...
- Eliminate Debt. Many young adults carry debt with them, usually originating from school loans, car loans, or credit card purchases. ...
- Create a Plan. ...
- Start Investing Early. ...
- Consult a Financial Advisor. ...
- Closing.
A simple starting point
So if you're 20, you would invest 80% in stocks and 20% in bonds. If you're 60, you would invest 40% in stocks and 60% in bonds. This formula is an oversimplification, but I like it because it gives you the idea of how your asset allocation should change as you age.
Here are some tips for how to build wealth in your 20s that will benefit you in your 30s and beyond!
- Create a budget. ...
- Contribute to your retirement fund. ...
- Focus on increasing your income. ...
- Cut back on your living expenses. ...
- Find a financial mentor. ...
- Pay off your debts. ...
- Build your savings. ...
- Focus on improving yourself.
Detailed Overview of the Best SIP Plans for 20 Years
- Axis Focus 25 Fund. ...
- Canara Robeco Emerging Equities Fund. ...
- Invesco India Liquid Fund. ...
- Kotak Liquid Fund. ...
- PGIM Global Equal Opportunities Fund. ...
- ICICI Corporate Bond Fund. ...
- Mirae Asset Large Cap Fund. ...
- IDFC Banking & Debt PSU Fund.
7 Financial To-Dos in your 20s
- Develop good budgeting habits. ...
- Pay down debt. ...
- Automate your savings. ...
- Build good credit. ...
- Start saving for retirement. ...
- Make sure you and your loved ones are covered financially. ...
- Work toward owning your home.
By age 21, assuming you have worked full time earning the median salary for the equivalent of a year, you should have saved a little more than $7,000. Read on to learn why you shouldn't be discouraged if your savings are nowhere close to that number.
Is a 70 30 portfolio risky? ›
Since, over time, stocks have the potential for both higher returns and higher risks, the 70 percent is more aggressive than a traditional 60/40 split. Over the very long-term period of 1926 to 2019, a 70/30 portfolio has an average return of 9.21 percent. For a long-term investor, that's a healthy appreciation.
Can you be a millionaire by age 20? ›
Becoming a millionaire earlier in life isn't easy, but it is within the reach of some twenty-somethings. You'd need to aggressively cut costs and chase high-income jobs so you can invest a lot each month.
What will $5,000 be worth in 20 years? ›
Answer and Explanation: The calculated present worth of $5,000 due in 20 years is $1,884.45.
How much will I have if I invest $100 a month for 20 years? ›
For simplicity's sake, assume that compounding takes place once a year. After 20 years, you will have paid 20 x 12 x $100 = $24,000 into the fund. However, the compounding return will more than double your investment.
How to save $1000000 in 20 years? ›
Given an average 10% rate of return on the S&P 500, you need to save about $1,400 per month in order to save up $1 million over 20 years.
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.
Many experts agree that most young adults in their 20s should allocate 10% of their income to savings.
