How To Invest Your Money In Your 20s

Illustrated by Elliot Salazar.
If anyone tells you their 20s was the best of time of their life, try asking: "Is that before or after you figured out how to manage your finances?" Sure, your 20s are thrilling; you're embarking on the beginnings of adulthood. But, they can be equally terrifying; you're navigating the much less-desired obligations of adulthood (bills, loans, and accepting the fact that you didn’t land a “dream job” out of college like you thought you would). While your financial situation will obviously differ from your fellow Millennial peers, there’s one thing all twentysomethings should have in common: the desire to establish good investment habits. 

"But, isn’t investing better left for when you’re making more money?" you might ask. According to Dominique Broadway — a financial planner, personal finance coach, and founder of De-mys-ti-fied & The Social Money Tour — this is a common assumption shared among twentysomethings. And, it's one you shouldn’t be making. “With investing, it grows bigger, it grows quicker, and it gives more financial freedom,” says Broadway, who at only 30 years old has already proven her investing prowess.

While certain types of investments might be obvious to you by now — like enrolling in a 401(k) if your employer offers a match contribution — others aren’t as clear. So, where else should you be “growing your nest egg” in your 20s? What if you don’t have much to invest, don’t know where to start, and terms like “Roth IRA” or “mutual fund” make your head spin? 

First and foremost, rest assured that it is completely okay and normal to not know where to begin. And, second, take comfort in knowing you’re not alone. To help clarify the process and make it as unintimidating as possible, we sought out a few financial planning experts who specialize in helping millennials (particularly those with limited investment know-how). 

Take advantage of their professional advice and personal experience and see if you can turn their two cents into a bigger return for yourself.       
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Illustrated by Elliot Salazar.
Now that you’ve been reminded of the importance of investing, you’re anxious to jump right in, and we applaud you — we really do. But, first, it’s vital to take stock of your current financial situation, especially what your situation might look like if you were to lose your job. “I always tell people: If you don’t have at least three to six months in a cash reserve account, I don’t think you should start investing. You don’t want to lose your cash cushion or emergency fund,” says Broadway. That said, if you need to save for a few extra months or even a year to build up a reserve, it’s well worth the time.
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Illustrated by Elliot Salazar.
"I’m a big believer in striking the right balance, which means you’ve got to get your debt under control,” says Robert Farrington, founder of TheCollegeInvestor.com. Find the repayment plan that works best for you and only invest once you’re comfortable with your monthly loan payments, he says. Farrington also recommends making sure you take advantage of auto-payment options for bills to ensure you’re saving time and avoiding late payment fees. And, download Mint on your smartphone. The app makes it incredibly easy to manage all of your accounts (and your debt) while also keeping tabs on whether you’re exceeding various areas of your budget.
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Illustrated by Elliot Salazar.
If your employer offers a 401(k) to start saving for retirement (and especially if the employer offers to match your contribution), that’s a no-brainer. Most employers will take money directly from your paycheck (pre-tax) and put it toward the 401(k), thus eliminating the temptation to use that portion of your salary for other purchases. Taxes also aren’t owed on the 401(k) until the money is withdrawn from the account. If your employer doesn’t offer a 401(k), set up an Individual Retirement Account, or IRA, where you can begin taking out money penalty-free starting at age 59 1/2.
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Illustrated by Elliot Salazar.
Whether it was “saving for a rainy day” or “building a nest egg,” your grandparents and parents likely drilled into you the importance of saving. But, as it turns out, savings accounts nowadays just don’t make sense. “These days, we’re lucky if we’re getting 0.5% back in interest on our savings,” says Broadway. “With inflation at 3%, you’re basically losing 2.5% when you just let your money sit in a savings account.” Instead of letting it sit there, take whatever savings you have and either put it toward your emergency fund or get ready to start investing.
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Illustrated by Elliot Salazar.
There are so many great tools out there for beginning investors, including simulated investing games to familiarize yourself with the process. Broadway recommends bookmarking the site Investopedia.com, which features a game as well as tutorials, and the investment blogs MoneyUnder30.com or TheCollegeInvestor.com, which cater especially to twentysomethings. Or, start by trying an app like Acorns, which automatically invests your “spare change” from every transaction you make into a diversified portfolio — easily one of the simplest ways to invest without overthinking it.
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Illustrated by Elliot Salazar.
When it comes to investing, the biggest excuse most millennials give is that they don’t have the money. And, they’re wrong, says Farrington. Millenials, he explains, have a unique advantage: more time. "Which means compound interest works in your favor,” he adds. So, even if you start off with investing just $20 a month, the important thing is that at least you’re doing it. After you get comfortable putting aside that amount, work your way up to $20 a week. “Every $1,000 saved in your mid-20s grows to over $10,000 at retirement, assuming 6% growth every year. But, waiting until your mid-30s means that same $1,000 will only grow to $6,000,” says Shane Leonard, a chartered financial analyst and CEO of Stockflare — a website that helps you filter through and pick out stocks for your 401(k), IRA, or portfolio. Plus, you can be more aggressive with your money in your 20s versus your 30s or 40s because chances are you have less risk (like a family or a mortgage).
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Illustrated by Elliot Salazar.
“Investing is one of the few industries where the amateur beats the professional day-in and day-out. Professionals get caught up in the market hype, buy hot stocks, trade too much, and incur lots of fees,” says Leonard. For female investors just starting out, here’s an interesting tidbit to boost your confidence: “If you look at the academic research, women are better investors than men, since they see through the hype and avoid overly complex ideas,” says Leonard. Just make sure you look for sites that charge minimal fees to invest, such as E*Trade. Or, try one of Farrington’s recommendations: PersonalCapital.com and Betterment.com.
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Illustrated by Elliot Salazar.
Don’t feel pressured to invest in something just because some investor on some morning show called it the new “it” stock. Instead, look at what you already own. “If you see you’re using all Apple products, for example, that’s a great fit,” says Broadway. “A lot of times, people don’t think of it that way. They’ll say, ‘Oh, I hear green tech is good,’ but if you don’t know anything about that field, you probably won’t feel 100% comfortable putting your money toward it.” Plus, if you’re already purchasing the company’s products, you’re also helping your own investment succeed.
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Illustrated by Elliot Salazar.
“A mutual fund is like an Easter basket of all your favorite candies, or in this case, companies,” says Broadway. Not only will it spread out your investments a bit, providing some cushion when one stock isn’t doing as well, it will also feel less nerve-wracking. Another important thing to note: Even if a stock isn’t doing well, ignore any knee-jerk reaction to sell it just yet. Remember: Investing is different from gambling, in the sense that you probably won’t see a return instantaneously. Rather, it takes time to grow, and can sometimes feel like a rollercoaster — with a low for every high.
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Illustrated by Elliot Salazar.
Even if you already have a 401(k) started for retirement, the beauty of a Roth IRA is that you can take out money you’ve been saving, penalty- and tax-free, if you use it toward your first house — or toward paying for college or graduate school (depending on the school), says Broadway. The one downside, she notes, is that a Roth IRA only allows a maximum contribution of $5,500 per year. But, the fact that you can withdraw your money penalty-free, regardless of your age (unlike a traditional IRA, where you have to wait until you’re 59 ½), makes it worth it. Remember when we talked about closing that savings account? This is a great alternative for that money, since it offers a better return.
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Illustrated by Elliot Salazar.
One of the biggest reasons why twentysomethings don’t invest? “They’ve been scarred by what happened in 2008. But, if they look at the stock market today, it’s actually come back stronger,” says Farrington. At the same time, don’t allow one bad experience with one stock discourage you. Investing is a learning experience, and the more you practice, the better you’ll get at trusting your instincts and figuring out better ways to diversify your portfolio.
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Illustrated by Elliot Salazar.
“Learning to invest is a little like going to a new city. You'll have a great time if you act with common sense. Do things you like. Don't go to dangerous places. Don't listen to smooth-talking salesmen,” says Leonard. Also, really learn to listen to and trust your intuition. “No one is going to take care of your money better than you,” says Leonard. “If something doesn't look right, move on. There are over 8,000 stocks in the U.S. alone, so plenty of other fish in the water.”
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