The decisions you make in your 20s can set the foundation for long-term wealth and financial security.
It is crucial to start investing as early as possible, as one of the biggest advantages you have when you’re under 30 is time.
Time is a powerful ally in the world of investing because of something called compound interest.
When you invest, the returns you may earn get reinvested, allowing your money to grow exponentially over time as the following year you earn growth on last year’s growth.
The earlier you start, the more time your money has to compound, which can make a significant difference in the amount you’ll have by the time you retire.
For example, if you start investing just 100 a month at age 25 and earn an average annual return of 7%, you could have around 250,000 by age 65.
If you wait until age 35 to start, that same 100 a month would grow to only about 120,000. That’s a big difference just because of starting 10 years earlier!
Step 1
Before you jump into investing, it’s essential to assess your current financial situation. Here are a few steps to take:
Step 2
Once you’ve got your finances in order, the next step is to choose the right investment accounts. This could be your workplace pension, private pension, or general investment / trading account hosted on an investment platform.
Step 3
Now comes the fun (or complicated!) part — choosing in what to invest. Here are a few common options:
Stocks:
Stocks represent ownership in a company. They tend to offer higher returns over the long term, but they also come with higher risk. As a young investor, you have the time to ride out the ups and downs of the stock market.
Bonds:
Bonds are loans you give to companies or governments. They tend to be less risky than stocks but also offer lower returns. They can add stability to your portfolio.
Exchange-Traded Funds (ETFs), Index Funds and Mutual Funds:
These funds pool money from many investors to buy a diversified mix of stocks, bonds, or other assets. They’re a great way to invest in a broad range of assets without having to pick individual stocks or bonds.