Investing in your 20s
InvestThere’s nothing like the thrill of your 20s. As your career kicks off, you’re most likely eager to try new things and take a few chances. It's also a great time to start thinking about your finances. With four decades until retirement, there could be no better time to start investing.
Why investing in your 20s matters
Being in your 20s often feels like a financial minefield. It's difficult enough to cover the basics like rent, car payments, and groceries. And, student loan payments only make things harder. So, it may be tough to start investing when your budget already feels tight.
The problem is, it may take years to pay off debt and boost your income.
You can start off small
Waiting until you’re "stable enough" to start investing could mean missing out on years of growth. That’s why it’s critical to start investing early — especially for long-term savings goals.
There’s nothing wrong with focusing on your current bills. However, you may regret ignoring your other financial goals later. Saving for a vacation, home down payment, wedding, or retirement takes time. The sooner you start investing, the more time your money has to grow. Even small amounts, like $20 or $30 a month, may add up over time.
Best investments to make in your 20s
It's normal to feel intimidated by investing. There is a lot of confusing industry jargon, and media reports of the daily ups and downs of the market can be unsettling. Here are a couple of the easiest types of accounts to get started with:
- Your company’s retirement plan.
One of the best ways to start investing is through your company's 401(k) or 403(b). You can invest every time you get paid through automatic contributions. Many companies are willing to match your deposits up to a certain percent (that's free money).
- An individual retirement account (IRA).
If you don't have access to a workplace retirement plan, consider opening an IRA. There are two common options — a traditional IRA or Roth IRA.
Traditional IRAs are like a 401(k) because your money goes in pre-tax. You can avoid paying taxes on the front-end, but you will owe taxes when you make withdrawals.
Roth IRAs are different because contributions happen after taxes. So, you won't owe money when you take it out in retirement, assuming it’s a qualified distribution (aka, withdrawal). If you make a withdrawal before 59 ½, there can be penalties.
The sooner you start, the better
Starting with the options above may help you feel more comfortable with the stock market. Best of all, you will get into the life-long habit of regular saving and investing. And by starting now, you may enjoy decades of growth and set yourself up for a healthier financial future.