Some of the best assets to buy in your 20s include index funds, dividend stocks, and real estate investment properties. That said, you can also invest in more passive-income assets, including REITs, or in your own future and financial independence by returning to school or building your retirement plan.
Your 20s are a defining decade. It doesn’t matter if you’re 22, 25, or 28 — this decade of your life can be a challenging time as you adjust to post-college life and grapple with growing up. But it’s also an incredibly important decade in terms of building a solid financial foundation for the rest of your life.
Along with building an emergency fund, starting to invest in your 20s is one of the best financial decisions you can make. Investing in assets early on puts you on track for a more secure financial future and allows you to reap the rewards — both now and down the road. But when it comes time to choose where to allocate your capital, which options should you focus on? We’ll walk you through some of the best assets that can put you on the right track toward financial freedom.
1. Index funds
One of the best assets to buy in your 20s is an index fund. In a nutshell, index funds are investment funds that track a market index, typically made up of bonds and stocks — such as the S&P 500. When you invest in an index fund, your money is used to invest in all the companies that make up that particular index. And because index funds provide a diversified portfolio, if one stock or sector goes downhill, there’s less downside overall because you’re invested in multiple areas at once.
You can typically invest in an index fund by opening a brokerage account, or through a traditional IRA, Roth IRA, or your employer’s 401(k). To find the ideal brokerage for your trading style, compare the brokerages below.
2. Real estate
In your twenties, buying real estate can be one of the best long-term investments you make. Residential real estate allows you to own and customize your own home or can provide a steady stream of rental income if you choose to go the landlord route.
However, that may be easier said than done. According to the National Association of Realtors and the Office of Policy Development and Research, housing isn’t affordable for many people. So what can you do if you can’t afford the traditional 20% down payment?
For a more non-traditional entry into the real estate market, you can check out crowdfunding sites like Fundrise and CrowdStreet. These sites allow investors to pool their capital together and invest in large commercial real estate projects, and can often provide great return potential. The best part is that you can commit as low as $500 or $1,000 to a single property — provided that you’re an accredited investor.
3. Dividend stocks
Dividend stocks represent ownership in a company that pays out a portion of its earnings in the form of dividends or regular “payouts.” This is one of the best asset types to buy when you’re in your 20s because it increases your passive income potential while providing long-term growth.
However, it’s important to remember that higher dividend yields aren’t always better. In fact, it can often indicate that the payouts aren’t sustainable. Most investors recommend staying within a dividend yield range of around 2% to 6% when shopping for dividend stocks. So if you come across a company that offers dividend yields higher than 6%, it’s worth examining the company’s past performance to ensure you’re making a sound investment.
There’s no better investment you can make than taking the time to invest in yourself and your education. While it may seem intimidating to return to school or attend a coding boot camp on top of working full-time hours, the rewards are worth it.
By investing in things that will give you income-generating skills and grow your expertise, you increase your potential for both rapid advancement in the workplace and increasing monetary returns. If you’re worried about affording tuition, consider applying for private or federal student loans. Just make sure you compare all of your options before deciding on one.
5. Real estate investment trusts
A real estate investment trust (REIT) is a publicly-traded company that owns or finances income-producing real estate properties across different sectors. REITs allow you to invest in large-scale commercial real estate without handling all of the legwork and financing that comes with buying individual properties.
Most major stock exchanges around the world offer publicly-traded REITs as an attractive and often safer alternative to direct real estate investing. Some of the best-performing REITs include VICI Properties, INC., Iron Mountain, CoreCivic, and several more.
Best of all, most publicly-traded REITs are liquid, meaning you can buy or sell them whenever you wish. Plus, because REITs are required to pay 90% of their annual income to shareholders, they offer some of the best dividend yields in the stock market.
6. Passive income-generating assets
Investing in income-generating assets at a young age is a smart way to create a form of long-term passive cash flow. Digital courses or products like e-books are popular options that can yield great returns once you build an audience or online presence. You could also consider starting a website or blog and monetizing it with affiliate marketing links or advertising slots.
It’s important to remember that these alternative investments aren’t some get-rich-quick scheme. But once established, you can reap the rewards with minimal effort and enjoy financial security for years to come.
7. Retirement plan contributions
Another one of the best assets to consider investing in is an employer-sponsored retirement plan, such as a 401(k). And if your employer offers 401(k) matching, take advantage of it since it’s essentially free money. For example, some employers may be willing to match 50% of your contributions, up to 6% of your annual salary.
Plus, 401(k) plans contributions are made with pre-tax money. In other words, the money you put into the account is deducted from your gross income and reduces your tax liability. The funds then continue to grow tax-deferred until you withdraw them.
Other money tips for your 20s
Personal finance isn’t exciting for most people in their 20s, but it’s an important part of taking financial responsibility for yourself. Here are some money tips for your 20s to help you take advantage of this transformative decade in your life.
1. Create multiple streams of income
Creating multiple streams of income is a great way to give yourself financial security in the long run. If you have some free time on your hands, consider offering freelance work, starting a blog, selling handmade goods on Etsy or eBay, or even opening an online store. The possibilities are endless.
So take some time to explore your interests and strengths to come up with the perfect combination of income streams. Remember, the key is to diversify your income and not rely on only one single source.
2. Invest aggressively
Getting the right financial strategies in place in your 20s can set the course of your financial future. Often people in their 50s and 60s are more risk-averse since they have less time to make up for losses. But if you’re just starting out in your 20s, investing in higher-risk wealth-building opportunities may offer greater investment returns down the line.
Though it’s important to be reasonable with your finances and create a balanced portfolio, taking on some risk allows you to benefit from high rewards. So instead of solely investing in conservative bonds and mutual funds, consider adding a few growth stocks to your portfolio.
3. Live below your means
By spending less than you earn, you can create a financial cushion that gives you the ability to cover unexpected expenses without digging yourself into debt. Keep in mind that living below your means doesn’t always mean living meagerly. It just means that you should manage your finances wisely and be aware of how much money is coming in each month versus what goes out.
4. Pay down debt
Paying down debt in your 20s is a great way to get off to a strong financial start. This could include student loan debt, credit card debt, or any other type of loan.
The two most popular ways to tackle debt are the snowball and avalanche methods. With the snowball method, you start by paying off the debt with the smallest balance first. And with the avalanche method, you start by attacking the debt with the highest interest rate first. However you approach it, both methods can be effective if you’re disciplined and stick to your debt-repayment goal.
What should I be investing in in my 20s?
Though there’s no one-size-fits-all answer, you could consider looking into stocks, retirement accounts, mutual funds, index funds, digital assets, and real estate. Remember that your risk tolerance depends on your investment period, ability to absorb portfolio volatility, and financial objectives.
So before you invest money, ask yourself how much risk you’re comfortable taking and how much money you’d like to spread across these different asset classes.
How can I build my wealth in my 20s?
Building wealth in your twenties doesn’t necessarily require a six-figure salary or extreme frugality. No matter what age you are, the best strategy for building wealth is to create smart habits that you stick with over time.
Setting up a budget and tracking all of your expenses should be the first step. After all, knowing where your money goes will help you be more mindful when it comes to spending. Secondly, investing wisely can pay massive dividends down the road.
With the disposable income you have, you can invest in the stock market to make more money or invest in your future by contributing to your retirement account or purchasing residential properties. Lastly, boosting your income by taking on side hustles or additional jobs can also help you achieve financial success much sooner.
Is it worth investing in your 20s?
Yes, investing in your 20s allows you to take advantage of compounding interest over time and reap greater benefits than waiting until closer to retirement age. If you want to achieve financial freedom before your golden years, start investing now and take the time to build a sound investment portfolio.
How much money should I have saved by 25?
According to retirement plan provider Fidelity Investments, you should aim to save at least 15% of your income annually starting at age 25. So if you make $50,000 a year at 25, you’d want to have at least $7,500 in your savings account. To reach this goal, pay close attention to your spending habits and lifestyle decisions. Consider automating your savings to set aside a consistent amount each month or pay period.
- Index funds are a great option for investing in your 20s because they provide diversified portfolios and can be accessed through a brokerage account, traditional IRA, Roth IRA, or 401(k).
- Purchasing real estate properties is another solid investment choice because it offers the potential for long-term growth. However, the barrier to entry might be higher than other options.
- You can also invest in yourself by returning to school, growing your retirement fund, or investing in assets that generate passive income.
- By investing aggressively, creating multiple streams of income, living below your means, and paying down debt, you’re more likely to achieve financial independence before retirement.
Invest wisely with the right advice
Investing in your twenties is an excellent way to build wealth and set yourself up for financial independence down the road. However, it’s important to take any investment advice with a grain of salt, especially if it’s coming from someone who lacks first-hand experience on the topic.
Investing can have risks that aren’t always apparent, so doing your own research on different investments is crucial before taking the plunge. That way, you can make an informed decision and rest easy knowing that you’re making a smart and calculated investment. You can also reach out to an investment advisor to get specific advice for your personal financial situation.
View Article Sources
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