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Why Investing in Your 20s Is So Important

by Davis Porter

Admit it. Investing in your 20s is probably the last thing on your mind right now. 

You’re young, you just cleared school, and you’re probably looking forward to a long life with plenty of investment opportunities as you get older. At the moment, though, your only obsession is possibly the student loan hanging over your head.

And that’s pretty understandable. You see, with student loan balances in the US currently averaging at about $35,359 per individual, repaying your college debts might seem like a huge financial commitment already- leaving barely any room for investing in your 20s. 

And that’s not all. Another huge discouraging factor is the risk that supposedly comes with long-term investments.

Since the Great Recession of 2007-2009, young Americans have been increasingly shying away from long-term investments. They apparently fear a repeat of the 2008 Market Crash, when the Dow Jones lost more than 50% of its value. 

Ok, fair enough. But then again, let’s look at things from the other side. Have you ever wondered how your fortunes would pan out if you went ahead and invested a small amount in your 20s? 

Why You Should Be Investing In Your 20s

You’ve probably heard this riddle. But, for the sake of clarity, allow us to pose it again. 

And here it goes – you’re faced with two choices. On one hand, you’re offered two million dollars. And, on the other, you have the option of keeping a penny that happens to double cumulatively every day for 30 days.

What would you choose? 

Now, of course, a penny is no match for a cool two million dollars. And even if it proceeded to double cumulatively, you’d only have about $671,088.84 by the 27th day. 

But then get this – the tables would turn drastically over the next three days. So much so that by the 30th day, the penny would have transformed to $5,368,709.12. 

Now, apply that principle in the real world of finances. Catch the drift? 

It doesn’t matter how small you choose to start. Investing early will give you a significant headstart and potentially great returns over the long haul. 

You could, for instance, begin investing $100 per month as soon as you hit 25. If the venture manages to consistently pay annual returns of, say 12%, your monthly deposits will eventually make you a millionaire by the time you retire at age 65. 

But, if you make the mistake of starting at age 35, $100 per month will only give you $300,000 at the same retirement age. 

And with that, let’s now dive into the practical bit to uncover the best possible investment options in your 20s.

The Best Investments To Take Up In Your 20s

S&P 500 Index Funds

While stocks are considered to be volatile high-risk investments that could go either way, S&P 500 Index funds have proven to be a much safer option. Over the past 90 years, for instance, the S&P 500 Index has given investors average annual returns of 9.8%

You see, the S&P is a special index that focuses exclusively on 500 of the largest companies listed in the U.S. stock market. Then the S&P 500 Index funds, on the other hand, give you the privilege of investing directly in the equities. 

In other words, you get to put your money into multiple stocks at the same time, instead of buying the company stocks individually. 

Now, to invest in S&P 500 funds as a young person, you need to set up a brokerage account with a reputable stockbroker. Examples include renowned firms like Fidelity, Vanguard, Merrill, and Ameritrade. 

With your account up and running, the next step would be choosing an appropriate S&P 500 Index fund. 

In that case, you might want to compare the options based on their respective prices, histories, and returns. Then when you finally make up your mind, you can proceed with the payment, and voila! You instantly join the ranks of the S&P 500 Index investors. 

Real Estate Investment Trusts

Real estate has always been one of the safest long-term investment options in the US. That’s why finance experts even argue that you can never go wrong with property investments. 

For people who are investing in their 20s, however, real estate might seem like a pretty far-fetched option because of the scale of capital required. Well, that was the case for many years, until Real Estate Investment Trusts came along. 

In essence, REITs are more like real estate stocks that represent physical properties. They are offered by the real estate companies that develop, manage, and operate the properties on behalf of the investors.  

While some deal in residential properties, others specialize in commercial units and so forth. Then by purchasing REITs, you get to invest in such projects without going all in. You can start with as little as a few dollars and then go on to expand your portfolio afterward.

That said, your purchase options here depend on the type of REITs you’d like to invest in. Publicly-traded REITs, for example, operate pretty much like standard stocks on the main stock market. That means you can purchase them through a stockbroker. 

Fractional Shares

As a young investor, you don’t have to purchase an entire stock, especially if it’s highly-priced. Fractional shares give you the benefit of splitting them into bits. 

Instead of buying a full Netflix stock for $500, for example, you get to invest in the company with as little as $20. You can think of it as buying shares in stock slices. 

Sadly, not every broker supports fractional share investing. You can only purchase them through specialized brokers like Shwab, Stash, Fidelity, and M1 Finance. 

The whole process is as simple as opening a brokerage account from your PC or smartphone, and then specifying the amount you’d like to invest, plus the specific shares you’d like to buy. 

Over To You

You can now go ahead and invest freely in your 20s. 

But, while you’re at it, don’t limit yourself. You can combine S&P 500 Index funds, REITs, and fractional shares with numerous other investment ventures. Spreading your funds across such a wide investment portfolio would help you manage the risks and safeguard your long-term gains.  

And with that, we wish you all the best in your early investments.

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