The twenties represent a highly crucial phase in an individual’s life. It’s seemingly the moment when a person is fully immersed in adulthood and all the responsibilities that come with the advent of this age bracket. Investing in your 20s can be a difficult task.
The twenties are also significant in how they signify an individual’s financial and personal development. As such, you must be responsible for your employment, housing, health, and the general well-being of your family.
As such, the term “finances” becomes essential as it determines how well you’ll be able to sustain yourself and your family. If you don’t have a proper financial plan, you’ll likely have some form or other economic precarity in the future.
So, let’s discuss how you, in your twenties, can achieve financial independence, find new avenues to invest your money in numerous sectors, and answer the fundamental question, “How to invest money in your 20s?”
Savings and Investments: Not just buzzwords but an essential practice
Growing up, you must have overheard your parents or other elders constantly discuss the benefits of investments and savings. Such has been the prevalence of these terms that governments worldwide and the commercial sector have introduced schemes that tap into the wealth of salaried and middle-class savings for decades.
They hoped that alongside industrial growth, the constant circulation of savings in the financial system would bolster the individual and the economy. However, the options available to the people were minimal due to various factors such as:
- Low employment rates
- Lack of start-ups
- Stagnant economy
- Market factors
But with time, the scope of investment has increased drastically, mainly driven by a speculative market that is much more vibrant and resourceful than previous sources. Significantly, the monetary return that’s achievable is immense.
More recently, the proliferation of cryptocurrencies has opened a whole new spectrum for high-level investment, particularly among young people asking, “how to invest money at a young age?”
Factors to Keep in Mind While Investing
1. Return on Investment
Return on investment, or ROI as it is commonly known, is considered one of the foremost factors determining the nature of the investment. You don’t need to be young or old to know and understand that if you invest your money, you will do it at a source from which you’ll receive the maximum returns. The whole point of investment is that!
Various companies and investment firms will tell you that if the rate of return isn’t good, there’s no point in investment. Most people in their 20s won’t have ample money to invest or save as they are just starting out in their careers.
So, while investing your hard-earned money, do thorough research about the opportunity or source where you are investing. Technically there are many subfactors associated with ROI that are differentiated by sectors. Some of the most common are:
- Market Share
- Product Quality
- R&D spending
- Marketing Expenditure
- Inorganic Growth
Next, we have cost. Any investment is determined by the cost you’ll incur over a period. Investments that have a high rate of return are naturally costly. Various market analysts have formulated techniques suggesting that you invest only 20% of your earnings.
You have, however, increased the scope when your earnings increase as well. But if you are young and have been earning for only a few years, you should take it slowly. Overenthusiasm can lead to cruel consequences. Some subfactors associated with the cost of investment include:
- Present economic conditions
- The capital structure of the source of investment
- Dividend policy
- Income tax rates
3. Goal-based Planning
From long-term government plans to short-term individual financial plans, goal orientation is always a prudent strategy. The fact that you are seeking adequate returns on your investment is goal-based planning.
Financial goals also determine your needs and the kind of return you seek. If you have long-term financial plans, you can afford to take more risks to enhance your outcome. Medium-term goals come with a more balanced outlook where returns are riskier than long-term goals, but you can experiment with your investments.
While short-term goals offer more returns, they can be very risky. It’s advised that young people opt for a more balanced and planned outlook.
Taxation cannot be overlooked when managing your finances and looking for investments. Various investments offer taxable or tax-free returns, but apart from government schemes, mostly all of them are taxable.
If you are seeking to invest in financial instruments such as mutual funds or stocks, it’s always prudent to understand the scale on which they are taxable.
Countries have different tax brackets for various schemes, so before investing, ensure you know the percentage you must spend for taxes.
“Don’t put all your eggs in one basket” is arguably the best advice you can receive as a young person. You put in quite a lot of hard work to earn your money, so you must be careful about where you invest it.
Always seek to diversify your options so that if you fail to manage adequate returns from one channel, you can always count on others to bail you out. If your portfolio is diversified, your revenue generation and return plans will be on track. Some of the factors involved in diversification are:
- Spread of wealth
- Portfolio building
- Knowing when to get out
- Intense scrutiny and research
We have discussed the crucial factors that any young and up-and-coming investor needs to consider while choosing an excellent forum. Now we’ll discuss some of the most lucrative investment channels that people in their twenties can look forward to.
Best Investment Options for Youngsters
Investment bonds have long been the go-to option for millions of people looking to invest in a safe and secure financial instrument. Consider a bond as an insurance policy that can hold your investment long.
For people who have just started professionally, bonds provide a suitable option because they are a cheap asset option that lasts for a long time, depending on your preferences. With investment bonds, you can recover your return when you pay a surrendering fee to withdraw your investment or when your bond reaches maturity.
The most significant advantage of Investment bonds is that they are highly safe and are averse to the volatility of the markets. Retrospectively they make the ideal financial instrument for young people and low-income professionals.
One of the best ways to invest money in your 20s, cryptocurrency is a more unconventional financial instrument, creating seismic waves in the investment market. Core to cryptocurrency is blockchain technology which has permeated its tentacles possibly into every industrial and financial sector.
Additionally, the social media presence that the instrument has garnered resulted in the popularity it enjoys among young people. Many people have become rich overnight across the world by investing in crypto. Even though it’s speculative and unreliable in many ways, it has become the ideal investment destination.
There is a widely held view that cryptos will be the future currency, so investing in them right now can yield high dividends later.
However, like every other financial instrument, they have pros and cons and are available in numerous varieties, so before investing in them, do adequate research.
Stocks have long been the financial instrument of choice for individuals who are averse to investing in public or government-run schemes. A stock assures that you partly own a private enterprise and have often accounted for the most significant returns.
You can always buy stocks to enhance your resources if you have extra funds to spare or a diverse portfolio. However, supplies depend highly on the market and financial capital, so you must be well-versed in its functionality.
Ideally, if you’re a first-time stock investor, try to cap your pricing at 10% or less of your total investment. That way, you will be safe and save resources for other financial instruments.
4. Mutual Funds
As the term suggests, mutual funds are mutual investments. The most significant selling point of mutual funds is that they incur minimal losses because the money is spread out in various portfolios.
For young people, mutual funds are a great option because they protect them from incurring tremendous losses and, at the same time, substantially secure their future.
Mutual funds allow you to tap into the stock market’s superior returns without holding individual stocks. This way, the profits are shared appropriately, and the loss ratio is limited. Some of the factors that you need to keep in mind while investing in mutual funds involve:
- Time Horizon
- Expense Ratio
- Fund performance
- Net Asset Value
- Exit Load
5. High-yield Saving Accounts
With the proliferation of many online and commercial banks, high yield saving accounts have become an appropriate investment mode for young people who don’t want their interests to depend on market forces.
Many banking establishments nowadays entice customers with high-interest rates and other benefits. These saving accounts are outstanding for short-term investments and overall cash management. There is also a certain flexibility that you can apply to garner additional profits.
6. Pension Schemes
As is often said, it’s always a good time to think about your future. Whether you are 25 or 55, worrying about your post-retirement life comes naturally. Gone are the days when the government took care of your pension until your last day. In today’s privatized world, you must think about that aspect independently.
As such, you can easily invest in governmental and non-governmental plans from now on and ensure that you live a comfortable life when you get old and aren’t working.
It is quite natural that with the advent of your twenties, you get added responsibilities that must be taken care of profusely. With the suitable investment, you can easily take care of yourself and your family and save for the future.
In today’s financial sector, various choices and instruments enable you to invest your hard-earned money in different ways. However, you must understand what’s best for you and how to do your business.