How to Invest in your 20s

For becoming a sterling and successful adult, investing at an early age provides you a head-start on meeting your financial goals like retirement because of the Compound returns you generate. These returns are the returns you get on all your previously invested money and profits, which subsequently leads to your money increasing at an ascending rate.

Investing runs hand in hand with risks, and one of the few things you should always remember is that previous performance does not always guarantee future returns. Investing at such an initial stage may prove to be a little over the top, but it is never too late to start something new, and you don’t have to always keep bringing in huge cash flows to be a successful investor. Due to the advancements in modern technology in the investment sector, the process of investing has never been easier and more accessible.

Here are a few mistakes you should avoid in your 20s -

1. Not budgeting your expenses
2. Depriving yourself of certain amenities and luxuries
3. Accumulating debts
4. Having a stable income throughout
5. Learn to say no to people

Keeping these in mind, here are a few pointers to remember if you are a young adult who just started investing –

Personal Finance

New and upcoming investors should always be thorough in their ABCs of personal finance which is an essential skillset to have in this line and the tasks like Budgeting, Saving, knowledge about different Financial Products, Financial Metrics and learning how to do your taxes are just some of the basic financial principles an investor should know.

Set Goals

Before you even start investing, it is essential that you make a budget plan or a reverse budget which will turn out to be a good tool for devising plans and setting new goals. One of the important pointers to remember is to keep your savings for short-term goals in cash as market instability is inevitable. This will create a battle between higher expected returns vs bonds/cash. Accepting market loss risks to meet your short-term goals is not recommended as they have less to almost no time to recover.

Secondly, it is important to keep a bag of stocks and bonds despite the exposure to risks to keep your personal wealth growing for your long-term goals such as retirement or a child’s education tuition, as an investment portfolio with fewer risks requires immense savings rate to maintain relevance to your cash flow.

Money Allocation

After outlining your financial needs, it is important to learn where to house your money in case of short, medium and long term needs so here is a table which will provide you a brief idea as to how you can take action -

Don’t be afraid to take Risks

One of the major advantages of starting to invest at an early age is that you have much more time  to bounce back from a market crash which means you can take more risks to achieve higher rewards. A certain amount of risk is essential to meet your investment goals as a stable & safe portfolio only means that you’re missing out on significantly higher returns.

Retirement Accounts

Multiple accounts offer tax-free compounding of earnings, income and capital gains. The primary place to start investing is through your employer-created and sponsored retirement plan. After investing enough in this plan, you can start working towards maximising your contributions to other accounts which are tax-advantaged like Roth IRA, Nondeductible IRA, Health savings account (HSA) and a taxable account in the same order itself.

Never stop learning

Learning never stops and the market doesn’t stop for anyone. It is absolutely important to keep updating yourself about different investment strategies and upcoming financial products because even after 30 years, you will still be uncertain about how certain parts of the market operate.

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Nextgen Global Services Pty Ltd trading as Kapitales Research (ABN 89 652 632 561) is a Corporate Authorised Representative (CAR No. 1293674) of Maven Capital Pty Ltd (AFSL No. 418504). The information contained in this article is general information only. Any advice is general advice only. No consideration has been given or will be given to the individual investment objectives, financial situation or needs of any particular person. The decision to invest or trade and the method selected is a personal decision and involves an inherent level of risk, and you must undertake your own investigations and obtain your own advice regarding the suitability of this product for your circumstances. Please be aware that all trading activity is subject to both profit & loss and may not be suitable for you. The past performance of this product is not and should not be taken as an indication of future performance.

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