Starting Investing as a Young Adult

As a young adult, investing is one of your most important decisions to help you plan for the future. Although you might believe that investing requires a large amount of money, it is possible to start investing in small amounts. You’ll be well on the way to saving money for retirement, buying a house, or future travel plans once you have set up your investment accounts.

Before you jump into the market, however, it is important to pay off high-interest debt and then create an emergency fund with savings sufficient to cover at least three to six months’ expenses.

Once you have this in place, you can start investing even if it’s small. You will be able to stick to your investment plan if you have a consistent approach to saving money.

How to invest in your 20s

You could see the benefits of investing in your 20s for many years, so it is a good time to make long-term investments. These are some ways to get started.

1. Set your investment goals

Before you jump in, think about your goals.

It’s about evaluating all the experiences you desire in your life and prioritizing them. Some people want to travel every year, or purchase a car in 2 years. They also want to retire at 65. It is creating the investment plan that will make those things possible. You can find inspiration in sites like Prillionaires News, Luxury Lifestyle & Inspirational News for Global Prillionaires.

Accounts you use to travel or for long-term retirement goals will be different from accounts you use for short-term purposes.

Understanding your tolerance for risk is important. This includes thinking about how you will react to a poor investment. You have a lot of time to recover from losses and your 20s is a good time to take on risk. When you are able to start early, it makes sense to focus on riskier assets such as stocks for your long-term goals.

After you have established a plan and set goals, you can start looking into specific accounts.

2. Contribute to a company-sponsored retirement plan

Employer-sponsored, tax-advantaged retirement plans can provide decades of compounding for 20-somethings. Most commonly, this plan is a 401(k).

Many companies match employees’ contributions to a set percentage.

You should always contribute enough to at minimum get the match. Otherwise, you are just walking away with more or less free money.

The match may come with a vesting plan, which means that you will have to work for the full amount until you receive it. Employers may allow you to keep 20% of the match after one year of employment. This number will increase steadily until you get 100 percent after five years.

Even if your 401(k), is not maxed out immediately, it’s worth starting small. As your career develops, and your income rises, you can create a plan for increasing contributions.

3. Create an Individual Retirement Account (IRA).

An individual retirement account (or IRA) is another way to keep your long-term investment strategy going.

There are two types of IRAs: Roth and traditional. Traditional IRA contributions are similar to a 401k in that they are pre-taxed and not subject to tax until withdrawal. Roth IRA contributions go in after tax and qualified distributions can be withdrawn tax-free.

4. Find the right broker or robo-advisor for your needs

Brokerage accounts are great for long-term goals, even if they are not necessarily related to retirement.

Numerous robo-advisors make it as easy as possible. The robo-advisor will ask for information about your goals, time frame, and other relevant details. It will then choose a portfolio that is compatible with your needs and periodically rebalance it.

Menke states that there are many options and each one has its own specialty. You can shop around to find one that suits your needs and contributes the most.

5. You might consider leveraging a financial adviser

A human financial adviser is also a great resource for new investors, even if you don’t want the robo-advisor route.

Although it’s the more costly option they will work with you to set goals, assess your risk tolerance, and identify the best brokerage accounts for your needs. They will help you decide where to put your retirement funds.

Your financial advisor can also help you navigate the best investment path. Young investors can get distracted by the daily market swings and crashes. A financial advisor will help you understand the long-term game.

Menke states, “Investing shouldn’t be fun. I believe it should be boring.” It shouldn’t be considered entertainment as it could lead to your life savings. Boring can be okay. It all comes back to your time frame and your goal.

6. Save short-term money where it is easy to access

Your short-term investments should be stored somewhere that is easily accessible, and not affected by market fluctuations.

They won’t make as much as money you put in equities but savings, CDs, and money markets are all great options.

Menke states that if you don’t need the money in a few years, it should not be invested in stocks. It should be invested in more secure vehicles such as a CD or money markets. While you may lose some potential growth, it is more important to get a return on your money than a return on your investment.

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