How To Invest Money In Your 20′s

It is never too late to start investing. You can always invest for your retirement at any age. It is always a good idea to start investing as soon as possible. Starting in your 20’s gives you the greatest chance of actually achieving your financial goals and become a millionaire. Let’s take a look at how a twenty something year old should invest and what to invest in.

How Much To Invest In Your 20’s

Individuals in their 20’s often do not have as much to invest as older individuals. That is because the average salary is lower than the average middle aged investor. Individuals in their 20’s can however invest a larger percentage of their earnings than older individuals. Twenty something’s should start with at least 20% of their income going towards investing.

This is a great percentage because it is affordable and will get you in the habit of putting your money to work right away. It only gets harder to save and invest the older you get. Building smart financial habits in your early years will make it easier for you to keep investing in your 30’s 40’s, 50’s, and 60’s. Every dollar that you put away today is one less dollar that will have to save tomorrow.

 

Where To Put Your Money In Your 20’s

I have always discovered that it is a good idea for a young investor to have both a retirement plan and a brokerage account. Retirement plans are 401k’s, IRA’s. 403B’s, and other federally recognized plans that have tax advantages. They are great for socking money away for your golden years. Brokerage accounts are better for investing money that you would like to withdraw before the age of 59 ½. Young investors should take a twofold approach. The first approach is to invest to make sure that the retirement years are taken care and the second approach is to invest to make money now.

For my own portfolio, I have money that I invest in a retirement plan for when I reach retirement age. I also have brokerage accounts, dividend reinvestment plans, and direct stock purchase plans. Those accounts are for money that I would like to have access to before I reach retirement age.

What To Buy In Your 20’s

Your investment portfolio in your 20’s should generally be geared to seeking high risk and high returns. Your early working years are the years when you can take the most risk. This is because most 20 year olds do not typically have a ton of financial obligations and a family to support. Your money can go towards trying to position your portfolio for maximum growth so that you are set by the time you are in your 40’s.

A young investor’s portfolio should be heavily tilted towards stocks. Young investors can afford to place at least 90% of their portfolios in equities. This can be buy purchasing individual stocks, exchange traded funds or by buying mutual funds. Since common stocks offer the greatest price appreciation, young investors should have exposure to individual stocks.

Invest in Small and Mid Cap Stocks

While large cap stocks like Proctor & Gamble (PG) and Hershey’s (HSY) are appropriate for any portfolio, smaller companies should be in a young investor’s portfolio. This does not mean investing in stocks that will lose your money but buying companies with a great business model and growth potential. A small cap stock could turn into a multibagger for your portfolio.

A company like GameStop (GME) is a great example of this type of company. GameStop was a small company that was entering the video game retail industry. Smart investors bought into the company in its early growth days 10 years ago. The stock has returned a solid 137% return over the past years resulting in a nice profit for investors.

Netflix (NFLX) is another great example as the stock has generated a 3,287.6% over the past 10 year. That is the type of return that an investor can retire on. Young investors need to take a shot on a few small companies or small cap funds because of the long term growth potential.

Final Thoughts

Keep in mind that the amount you can invest can vary drastically. A single 25 year old with no children or bills can afford to be a whole lot more aggressive when investing than a married 25 year old with kids, a home, and lots of debt. If you are young and in position to invest heavy then you should take a chance. You are only young once and the rewards far outweigh the risks!

Comments

  1. Good stuff! I need to heed your words on the small cap stuff. I’m pretty concentrated on large cap stuff, but mostly because I plan to retire young (40). My horizon is therefore only 11 years, so my investment style tends to mirror a much older person!

    I completely agree with you on getting in the habit of saving! 20% is probably a great number in your 20′s…although I tend to be much higher, over 50%. Again, my horizon is completely different from most 20 year-olds.

  2. avatar Ginger says:

    Right now I am shoving as much into my Roths as I can. I am in the 10% tax bracket and want to take advantage of it. I am just using target date funds until I have enough money to diversify outside of them. I am only saving 12.5% but am working on increasing it over time. I am almost entirely invested in stocks, except for my house and my EF, which are both outside of my Roths. Great article.

  3. avatar Inq says:

    Nice. Investing horizon and exit criteria are important to the decision as well.

  4. Great stuff here. I have GME in my retirement account right now. It has been acting a little weak lately. I am hoping that it finds a base soon.

  5. avatar Alexander says:

    I agree with you. If you have a wife and kids is harder to be agressive when investing. It`s easier when you are single.

  6. Yes, yes, yes, start investing young to reap great financial rewards. Just remember, don’t invest any cash you will need in the next 5-10 years in stocks. They are way too volatile.

  7. A worthwhile note is that there are a lot of investments out there that combine a sort of stability with aggressive total return targets. One doesn’t necessarily need to seek high growth companies to seek high total returns. Several MLPs, for instance, have produced substantial market-beating returns, while simultaneously providing a higher distribution yield, and with fairly robust economic moats. Mid-cap dividend growth stocks have a decent chance of becoming the large or mega-cap blue-chips that, today, investors look back and talk about how well they performed over decades.

  8. Thanks for this article! Being in my mid twenties, I am just recently taking steps towards creating my own investment portfolio. Once I establish a healthy sum to start investing with, I am going to take your approach and invest in small cap stocks that look promising. I plan on taking the next year or so to research some business ideas and options to keep in mind while saving so that I can be more confident and diverse when it comes to making some stock purchase decisions.

  9. avatar Jerri says:

    Hi Mark,
    As always good info, I decided that my son will, from now on place ( 20%) for starters in that mutual fund investment. However, never thought about starting a retirement account too; that’s next. Thanks!

  10. I wish i would have started investing earlier in index funds. They show a really return in the long run. I also think gold is still a good investment in the long term. If you look at i over a 50 year period, it shows pretty consistent growth. I’m waiting till the bubble deflates a little and then i’m gonna buy.

  11. avatar Jacob says:

    yes! that’s good . but any high returns are followed with high risk.

  12. avatar boniface kariuki says:

    i am 23 years old,and my monthly salary is 25 thousand.please help me with ideas how to invest the money

  13. avatar Patrick Asiedu says:

    I am 28 years and i’ve always wanted to start investing. I wan to buy some shares in a company but don’t know how to identify a company with high growth potential. Should i choose companies with lower P/E ratios.

  14. avatar Bradley says:

    Im 18 and i was wondering if now is a good time to invest?

  15. avatar Dalton leopard says:

    I am 20 and I am very interested in investing, I just need to know how to start and what I should invest my money in. NEED HELP!!!

  16. avatar justine says:

    i just turned 20 on Christmas…and now i think it’s time for me to invest but i don’t know how to start and what a some thing i think of

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