Investing in your 20s is one of the greatest steps you can take towards financial independence. It pays to get a jump-start on saving for financial goals like retirement, especially because of compound returns. Here are 5 tips for investing in your 20s:
- Educate yourself: Get reading about investing, No one will ever care more about your money than you will. Investing is like learning a foreign language and it can feel overwhelming. But if you learn a little bit every day, by this time next year, you’ll be in a totally different place. It’s your responsibility not your financial advisor’s, not anyone else’s to learn about your money and know exactly what’s happening with it.
- Save an emergency fund: If you don’t have an emergency fund, you are in a state of emergency. It’s not a matter of *if* an emergency will happen – it’s a matter of when. Life happens. Things cost money. You need to have some cash stashed away that is not invested to cover emergencies.
- Consider the risk: Before you decide how to invest your money within an account, you need to decide how risky you want to be. Risk tolerance is how comfortable you are taking risk. Risk capacity is how much risk you can take on given your circumstances.
- Start small if scared: After you’ve done some research, even if you’re a little nervous, start to invest with small amounts of money. This is better than doing nothing (assuming you’re out of debt and have an emergency fund in place). Like anything new, when you start it’s going to be uncomfortable. No one is born knowing how to invest. You have to start somewhere!
- Expect ups and downs: If you’re investing for the long term (say for retirement in 20 to 30 years), there’s no reason to react and worry about the ups and downs in the very short term if you believe that over time, the investment market will go up. The media loves to use scare tactics about market performance. Don’t fall for it! Stick to your strategy. Re-balance as needed. Don’t freak out.