What to Know About Investing When You’re in Your 20s
in , , , , , , , ,

What to Know About Investing When You’re in Your 20s

What to Know About Investing When You’re in Your 20s

Most people spend their 20s learning how to be an adult in the real world. Trying to figure out money into the mix can be a very hard time when you are trying to figure out money. On the plus side, this could be your first full-time job. But you need to figure out how to spend that money wisely.

Managing your money means putting your current bills in order of importance and making plans for the future. After paying rent, utilities, student loan payments, groceries, and other basic bills, many people are just starting to find that they don’t have much money left. But even if money is tight, you should still save and invest if you want to be able to buy more things in the future.

Can I save and invest when I earn more?

That’s one way to do it. But if you wait, you’ll lose your biggest financial advantage in your 20s: time.

Being young implies that you will (ideally) have many years, if not decades, to invest your money. This gives compounding more time to do what it does best, making earnings grow on top of earnings. So, if you start investing right away, even with a small amount of money, you give your money more time to grow.

Say, for example, that you save $10 every week. After 10 years, that adds up to $5,200. If you put that money away each week in a savings account that gives you 1% interest (which is about average for these kinds of accounts, according to Bankrate), you’ll have $5,468 after 10 years. Not a bad thing to add for not much extra work on your part. Even better, if you put your money into a wide range of stocks and earned an average of 6%, you’d have $7,062 after 10 years. That’s $1,594 more just for moving your money.

Is it possible to invest just $10 every week?

It can be done with even less. You might have needed a few hundred or a thousand extra dollars in your monthly budget to start investing regularly. Thanks to the rise of micro-investing, you can start investing with as little as $5.

How does micro-investing work?

Micro investing is when you invest in very small amounts. This is possible because you can buy fractional shares, which are just a small piece of a single share of stock. That makes popular but expensive stocks like Amazon’s (around $1,760 per share as of mid-December) and Google’s parent company Alphabet’s (around $1,350 per share) more accessible to regular investors, even those just starting.

Even though exchange-traded funds (ETF) and mutual funds are usually cheaper than individual stocks, some investors may find them too expensive. For instance, used in some portfolios, Vanguard’s S&P 500 ETF costs more than $290 per share, and iShares’ iBoxx $ Investment Grade Corporate Bond ETF, which is also used in some Acorns portfolios, costs about $128 per share. And for many mutual funds, you have to put in at least $1,000 when you start.

But an app like Acorns can help you buy ETFs and other investments with only your spare change. It works as follows: You create an Acorns account and link it to a source of money (like a bank account) and the debit or credit cards you use most often to buy things. Then, when you use the linked card, Acorns rounds up the charge to the next dollar and takes the difference from your funding source.

Usually, when your spare change adds up to at least $5, it gets put into your routine portfolio, a mix of funds with allocations that match your goals and level of risk tolerance. Users of the Acorns Spend card, on the other hand, can have their purchases’ round-ups invested in real-time.

Even with decades of aggravating on your side, investing just $10 a week or your spare change might not be enough to reach long-term financial goals like retirement. Even so, it’s a good beginning. And hopefully, just getting started will show you how easy investing can be and encourage you to keep doing it and save and invest even more.

What are the dangers?

Investing is risky; that’s true. But when you’re in your 20s and taking investment risks, time is your best financial friend. Even though markets go up and down all the time (this is called “market volatility,” and it’s normal), stocks tend to go up in the long run. If you start investing in your 20s and can stick with stocks for the long term, you’ll have additional time to ride the wave up and get back on your feet if you fall.

Also, because of inflation, not investing can be risky too. According to InflationData.com, the current inflation rate of about 2% is higher than the average interest rate on savings bank accounts, 1%. (Many banks are even giving less.) So, the money you were trying to keep safe is losing its value over time.

Having a well-diversified portfolio is another way to reduce risk when you invest. That means having a wide range of investments, such as a healthy mix of stocks, bonds, and cash, and diversity in the way your investments are broken down. For example, your stock portfolio should include both foreign and domestic stocks and companies of different sizes and industries. This plan makes it more likely that at least some of your investments will do well, even if others fail.

Leave a Reply

Your email address will not be published.

Written by Finance Guru

What Should You Know About The Billing Cycle Of Your Credit Card?

What Should You Know About The Billing Cycle Of Your Credit Card?