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How to get started investing in your 20s

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Updated: January 10, 2024

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You're always being told to invest your money, even when the stock market is volatile. Some even say now is the best time to invest because of low prices. But exactly what should you be investing in your 20s?

Below are eight investment ideas you should consider while you're young. You certainly don't have to invest in all of them. But by picking just two or three and steadily funding each, your wealth will begin to grow quickly.

Factors to consider before investing

Before we dive into some of the best ways to invest in your 20s, there are a few considerations young investors should keep in mind before putting their money to work:

  • Timeframe: Are you investing for the long-term or do you need your cash within the next few months or years? For long-term investing, young investors can typically take on a bit more risk and trust that time and compound interest will work in their favor. In contrast, short-term investing generally means picking safer investments.
  • Investing goals: Are you investing for income, growth, or some combination? Again, investors in their 20s can generally aim for higher-growth opportunities since time is on their side, whereas older investors tend to favor fixed income.
  • Active vs. passive investing: How much time are you willing to spend on your investing portfolio? Some investors prefer to stay hands-off and simply dollar-cost average into various index funds and ETFs. But for others, researching individual stocks and sectors might be more enjoyable.

There's no cookie-cutter solution for the perfect investing style or philosophy. But the more you learn about investing and think about your goals, the more confident you'll become as an investor.

6 ways to invest in your 20s

Now it's time to explore some of the best investments to make in your 20s to set you up for success at a young age.

1. Invest in the S&P 500

As a young investor, your investments should be concentrated on growth-oriented assets. That's because in the decades ahead of you, you can take advantage of compounding of much higher rates of return on growth investments than you can get on safe, interest-bearing ones.

The S&P 500 index has provided an average annual rate of 10% return going all the way back to 1926. That's an incredibly powerful source of compound earnings.

While the stock market can be volatile at times, stocks are still a good choice if you're young. You can take advantage of low prices for top stocks. Plus, you have plenty of time to weather the current stock market lows. Just be sure only to invest money that you don't currently need.

For example, at age 25, if you were to invest $10,000 in safe CDs paying an average annual rate of return of 2%, you'd have $22,080 by age 65. But if you invest the same $10,000 at age 25 in S&P 500 Index funds producing an average annual rate of return of 10%, you'll have $452,592 by age 65. That's more than 20 times as much as you would have if you invest the same amount of money in CDs.

This isn't an argument against cash. You should have a sufficient amount of cash sitting in an emergency fund to cover at least three months' of living expenses. That gives you a cash cushion should you either lose your job or get hit with some unexpected expenses like a medical bill. The other advantage of an emergency fund is that having one will keep you from liquidating your investment assets.

However, when investing in the S&P 500, be aware that the figure of 10% per year is an average over more than 90 years. It has fluctuated dramatically. For example, you may lose 20% one year and gain 35% the next. But when you're young and in your 20s, this is a risk you can more easily afford to take. You'll miss out on plenty if you don't.

To get started investing in S&P 500 Index funds, you can use an online stock broker. There are several brokers to choose from today.

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2. Invest in REITs

Real estate is another growth-type investment strategy. Investing in a REIT (real estate investment trust) is an opportunity to hold a portfolio of commercial real estate, which often outperforms residential properties. This can be more valuable than owning a single investment property because the portfolio is invested in different types of property in various geographic locations. That gives you greater diversification than you can get with a single property.

Another significant advantage is that you can invest in a REIT with just a couple of thousand dollarsBuying an investment property outright would require a much larger amount of capital just for the down payment. We can also add that you don't need to actively manage a REIT the way you would with an investment property.

There's also an argument that REITs have outperformed stocks in the past few decades. But even if the returns are no better than equal to those of the S&P 500 index, a REIT is still a valuable hold for investors in their 20s. For one, real estate has been a strong performer over at least the past half-century. Second and perhaps more important, real estate β€” and commercial real estate in particular β€” often moves independently of the stock market.

For example, a REIT may continue to provide positive returns even when the stock market is falling. This is not only because REITs pay regular dividends but also because commercial real estate may continue to rise in value when the stock market is falling.

Perhaps more than anything, REITs are a way of diversifying your growth assets beyond stocks. We recommend investing in REITs using real estate crowdfunding sites, as it allows almost anyone to invest in private real estate deals with a lower minimum investment.

3. Find a robo-advisor

If you're not familiar or comfortable with investing on your own, you can start investing through a robo-advisor.

A robo-advisor is an online, automated investment platform that does all the investing for you. It includes creating your portfolio, then managing it from now on. They even reinvest dividends, periodically rebalance your portfolio and offer various tax strategies to minimize your taxable investment gains.

What's more, you can use a robo-advisor for either a taxable investment account or a retirement account, particularly IRAs. It's hands-off investing at its best. All you need to do is fund your account and the robo-advisor handles all the details for you. And they typically invest in a mix of stocks and bonds. Many also offer funds that focus on ESG stocks.

Wealthfront and Betterment are the two of the largest independent robo-advisors. Both offer an incredible range of investment benefits and are on the cutting edge of the industry.

4. Buy fractional shares of stocks or ETFs

You don't have to buy full shares of a stock or an ETF these days. If you want to be more hands-on with your investing but can't afford a lot of stock, consider fractional shares. This is when you buy a portion of a stock for a fraction of the price.

For example, if you want to buy Netflix shares, but can't afford $500 to buy one share. You can invest $20 instead and buy just a little bit of that one share. With fractional shares, you still own a portion of the company.

Not every investing app or broker will let you buy fractional shares. One great app that will does allow for fractional shares investing is Public.com, a commission-free stock and ETF trading app for iOS and Android. It also supports fractional share investing in stocks and ETFs.

More: Best investing apps of 2024

5. Buy a home

This one's kind of a mixed bag. On the positive side, buying a home in your 20s lets you build substantial equity over many years. This is done by a combination of gradually paying down your mortgage and the value of the property increasing.

Investing your money into a home also has the advantage of leverage. Because you can buy a home with as little as 3% down (or no down payment at all with a VA loan), you can get the benefit of appreciation on a $300,000 property with an out-of-pocket investment of just $9,000.

Even if you do nothing more than simply pay off the mortgage in 30 years, your $9,000 investment will grow to $300,000. That will increase your initial investment by a factor of 33. But price appreciation of the property can make that number a lot higher.

The downside to buying a home when you're in your 20s is that you may not be at a point in your life when the relative permanence of homeownership will work to your advantage. For example, being early in your career, you may need to make a geographic move in the near future. If you do, owning your own home could make that move more challenging.

If you're single, owning a home forces you to pay for more housing than you actually need. And of course, a future marriage could also hold the possibility of making a geographic move or needing to purchase a different home.

Buying a home can definitely be an excellent investment when you're in your 20s. But you'll have to do some serious analysis to determine if it's the right choice at this point in your life.

6. Open a retirement plan

There are two primary reasons for opening a retirement play while you're young: getting an early jump on retirement savings and tax deferral.

Getting an early jump on retirement savings. If you begin contributing $10,000 per year to a retirement plan beginning at age 25, with an annual return of 7% (blended between stocks and bonds), you'll have $2,008,829 in your plan by age 65. Being on that kind of fast track may even enable you to retire a few years early.

But if you delay saving for retirement until age 35, the results are not as encouraging. Let's say you begin saving $15,000 per year at age 35, also with an average annual rate of return of 7%. By the time you're 65, your plan will have only $1,426,427.

That's more than 25% less, even though your annual contributions will be 50% higher. That's a compelling reason to begin saving for retirement as early as possible. You don't need to contribute $10,000 either. Contribute as much as you can now and increase the amount as you move forward and your earnings increase.

Tax deferral. The tax deferral angle is just as magical. In the above example, we showed how investing $10,000 per year beginning at age 25 will give you a retirement portfolio of over $2 million by age 65. A big part of the reason that's possible is because of tax deferral.

But let's say you choose to make the same investment each year in a taxable investment account. You have a combined federal and state income tax marginal rate of 25%. That will lower the effective return on investment to just 5.25%.

What will the results look like after 40 years at the reduced after-tax investment return?

You'll have just $1,290,747. That's more than 35% less, due entirely to taxes.

More: What is the FIRE movement?

Retirement plan options

If your employer offers a company-sponsored retirement plan, this should be your first choice. They'll typically provide either a 401(k) or a 403(b) plan that will let you contribute up to $19,000 per year out of your income.

In addition to the tax deferral discussed above, retirement plan contributions are tax-deductible from your current income. A contribution of that size would produce a significant tax break.

If you don't have a plan at work, consider either a traditional or a Roth IRA. Either will allow you to contribute up to $6,500 per year and provide tax deferral on your investment earnings.

The major difference between the two IRAs is that while contributions to a traditional IRA are tax-deductible, contributions to a Roth IRA are not. However, the Roth IRA more than makes up for that lack of tax deductibility.

With a Roth IRA, withdrawals can be taken completely tax-free once you reach age 59Β½ and have been in the plan for at least five years.

Other ways to invest in your 20s

While not an investment in the sense of watching your money grow, these suggestions are how to invest in ensuring you have a solid financial future.

Pay off your debt. One of the major investment complications for young people is debt. Student loan debt alone is a major issue, with the average loan amount at $37,718 for 2023. But many young people also have car loans and more than a little bit of credit card debt.

The problem with debt is that it reduces your cash flow. If you earn $5,000 per month and $800 is going out for debt payments, you really have only $4,200 per month.

In a perfect world, you would have no debt at all. But this isn't an ideal world, and you probably do.

If you do have debt and you also want to invest, you're going to have to find a way to create a workable balance. It would be great to say that you'll just make your minimum debt payments and throw everything else into investments. That will certainly allow you to take advantage of the compounding of income that investments provide.

But at the same time, there's an imbalance. Investment returns are not guaranteed, but the interest you pay on loans is fixed. Put another way, even if you lose 10% on your investments, you'll still be required to pay 4% on your car loan, 6% on your student loan debt, and 20% or more on your credit cards.

One of the best investments you can make in your 20s then is to begin paying down your debts. Credit card debt is a good first target. They're usually the smallest debts you have but carry the highest interest rates. If you're paying 20% on a credit card, you won't be able to get that kind of return consistently with your investments. Paying off those credit cards is the best debt-reduction strategy you can make.

Improve your skills. Most people don't think of improving their skills as an investment. But as a young investor, that can actually be one of the very best investments you can make. After all, the income you earn over your lifetime will be your single greatest asset. The more you can increase it, the more valuable it will be.

Plan to invest at least a small amount of money and time in acquiring any skills you need in your career. You may also think about skills you want to add to prepare you for either a higher-paying job or even for changing careers later on.

You can take additional college courses, order online courses, or enroll in various programs that will add to your skillset. Sure, it will cost you money in the short run. But if it will increase your income substantially in the future, it'll be some of the best money you ever spent. And that's an investment in the truest sense.

Investing FAQ

  • How do I determine my investing goals?


    Starting to invest in your 20s means you have time on your side and you can aim for longer-term growth opportunities. You'll want to consider your risk tolerance and how much you want to invest as well to determine your goals.

  • Are investing apps safe?


    Most popular investing apps and platforms provide robust security features to keep your personal information and data secure. Check for features like two-factor authentication, encryption to help keep your data, your investments and your identity secure.

    Of course, investing apps don't protect you from normal investment risk, including risk of loss. Look for an app that provides educational tools that can help to ensure you understand the risk involved with the market and your particular investment choices.

  • Are robo-advisors good for young investors?


    Overall, robo-advisors can be a good option for young investors just starting out who are looking for a simple, convenient, and cost-effective way to invest. These platforms tend to be accessible to a wider range of investors, including those with smaller investment portfolios, limited investment knowledge and smaller budgets for advisory fees. They’re also designed to be user-friendly, with a simple sign-up process and an intuitive interface.

Final thoughts on investing in your 20s

Because of income limits, it's not likely you'll be able to spread your money into all of these investments during your 20s. But you should pick at least two or three and charge forward. Investing works best when it's done early in life. That will let your money grow, giving you more options in the future.

Kevin Mercadante Freelance Contributor

Kevin Mercadante is professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com.


The content provided on Moneywise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.