Key points
- Investing time in education and financial literacy can help you make smarter decisions later in life.
- Paying off debt and saving three to six months in an emergency fund can clear the path for you to build wealth.
- Growth stocks, the S&P 500, and robo-advising are great investments for those ready to invest for their future.
As a 20-something, you have one major advantage over older investors: time. Yes, when it comes to building wealth, you have time to invest, grow your money with compound interest, and make up for any short-term losses. That doesn’t mean you should throw your money at NFTs, crypto, or investments that promise you’ll “get rich fast.”
But financial decisions you make today can have a long-lasting impact on your financial future. To put you on solid ground, here are seven of the best investments you can make in your 20s.
1. Pay for your education
While you might be eager to break into the workforce and start working your way up, trust me: Nothing — nothing — can replace two to eight years of dedicated study and practice. It doesn’t have to be a college or an advanced degree either. Any educational program that teaches you how to think and improves your ability to solve problems can go a long way in helping you secure a job you love and that pays you well.
2. Become more financially literate
Personal finance is so much more than money. While earning and saving are the engines of building wealth, you also have to protect yourself against lawsuits (insurance), leverage debt to buy things you wouldn’t have otherwise afforded (mortgage), and navigate complex codes that have a bearing on your income (taxes).
Learning the fine print of finances can help you make savvy decisions, simply because you know the options and understand how they can benefit you. As a 20-something, here are a few subjects you should master:
3. Pay off debts
High-interest debt, like that carried on credit cards, is the opposite of a great long-term investment. The longer you have it, the more money it costs you. Taking care of your debts in your 20s can free up income for later years, helping you save for bigger goals, like buying a house or investing for retirement.
4. Save for emergencies
Once you’ve paid off your debts, start setting money aside for emergencies. Ideally, you should have three to six months of living expenses in a savings account that’s easily accessible. This could be a high-yield savings account, money market account, or regular savings account. This might take some time. But be patient, as accomplishing this goal will give you a security net to fall back on and prevent you from reaching into your retirement accounts or leveraging high-interest debt.
5. Consider growth stocks
Growth stocks are offered by companies that are increasing revenue and gaining market share at a faster-than-average pace. The most successful growth stock companies start out as small, little-known startups who, through innovation and grit, emerge as industry leaders.
Growth stocks are risky, and you can lose money on them. But when you have a long time horizon, it’s okay to take a little risk, especially if you’re sufficiently informed on what you’re buying. You can buy and monitor your growth stocks through a brokerage account, and many of the best will even educate you with research and stock analysis tools.
6. Invest in the S&P 500
The S&P 500 index is one of the best long-term investments for anyone, regardless of age. Composed of the 500 largest publicly traded companies in America, this index can give you broad exposure to stocks at a relatively low fee. While not as exciting as growth stocks, it can give your investment portfolio some firm ground for long-term growth.
7. Use a robo-advisor
Robo-advisors are an excellent way to learn how to invest and put your money to work without requiring you to hand-pick stocks yourself.
Robo-advisors supervise and automate your investment planning. They ask crucial questions from the get-go, such as your age, investment goals, and when you want to retire, then they build a portfolio to match your risk tolerance and objectives. Many of the best robo-advisors charge low fees, require minimum deposits, and will automatically rebalance your portfolio to align with your goals.
A robo-advisor is helpful for investors of any age, but they can be especially valuable for those just starting out. They can take heavy investment responsibilities off your shoulders, while you focus on other more immediate goals (like education or starting a small business).
Ultimately, your 20s are the years to lay a strong foundation on which you can start building wealth in your 30s. You don’t have to accomplish everything in your 20s (trust me: you have time), but focusing on the seven investments above will help you get familiar with how money works — and what you can do to make it work harder for you.
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