4 effective ways to start investing in your 20s
The 20s are the most happening time period in most people’s life. Once college is over, people can start their careers, families or even their own business. It is also the best time to start saving as you have time and productivity on your side. It might seem hard to start saving but these 4 tips may help you get started:
Don’t postpone investing. Many 20 somethings do not invest in the market as they don’t consider themselves to be experts. This isn’t valid reason to not invest. Small steps can take you a long way when it comes to investments. If you have a 401k, index funds and low-cost target-date funds are your best options as beginners. If you do not have a 401k, you can start by setting up a traditional IRA. These are just the stepping stones. Over time, as you learn more about the market, you will be able to make your own investment decisions.
You will save more if you start saving in your 20s as you have lesser expenses. Studies have shown that saving from the age of 25-65 will give you about $187,500 with a 6% returns. Even with the same returns, saving from 35-65 will give you only $94,800. It is clearly seen that the sooner you start saving, the better you can handle future risks. Saving 20% of your income might be ridiculous to think about it now, but it will help.
There are fewer spending demands in your 20s compared to your 40s and 50s as you do not have the additional cost of raising a family. Take advantage of this and save as much as possible. Saving will make sure you are prepared in the event of a job loss or other sever financial strains in the future. Auto-increases on your 401k will help you do this and it is recommended that you sign up for it.
Put your money into equities and do not worry too much about the risks. The key to being successful is to be aggressive. Don’t just save, take the risks when you can and make some money. Stable value funds are low-risk but if you’re planning to save up for retirement, you will need to do more. Moreover, all-cash accounts, money markets and stable value funds have a lower chance of competing with inflation.
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