Skip to content

Wealth building in your 20s: Top investment strategies

Landing an 8-figure salary; Key industries and their top positions
Bogdan Stojkov

In your 20s, you have a significant opportunity to lay down the foundations for your financial future. One of the most crucial aspects of this is investing wisely. While it may seem overwhelming, especially with limited resources, there are several investment strategies tailored to suit the unique circumstances of 20-something-year-olds. Hence, in the following piece, we’ll explore the best investments to make in your 20s if you’re looking to build wealth and secure their financial future.

Why is it important to invest early?

Investing early in your 20s can be immensely beneficial due to the power of compound interest. Namely, compound interest allows your investments to grow exponentially over time, as you earn interest not only on your initial investment but also on the interest earned. The longer your money stays invested, the more it can grow.

Compound interest example

In a simple compound interest example, let’s say you invest $1,000 at an annual interest rate of 8%. After one year, your investment grows to $1,080. In the second year, you earn 8% interest not just on your initial $1,000, but on the entire $1,080, resulting in a total of $1,166.40. Over time, this compounding effect accelerates your wealth growth.

Why do investors diversify their portfolios?

Diversification is key to reducing risk in your investment portfolio. By spreading your investments across different asset classes, industries, and geographical regions, you can minimize the impact of any single investment performing poorly.

Here are some ways to diversify your portfolio:

  • Geographical regions: Consider investing in both domestic and international markets to reduce geographical risk.

Take advantage of employer-sponsored retirement plans

Many employers offer retirement plans such as 401(k)s or similar options. These plans often come with employer matching contributions, which is essentially free money. Here’s how you can make the most of employer-sponsored retirement plans:

  • Contribute enough to maximize employer match: Aim to contribute at least enough to your employer-sponsored retirement plan to receive the full employer match. This is essentially an immediate return on your investment;
  • Consider Roth options: Some retirement plans offer Roth options, which allow you to contribute after-tax dollars. Withdrawals from Roth accounts in retirement are tax-free, providing valuable tax benefits.

Invest in low-cost index funds

Index funds are mutual funds or exchange-traded funds (ETFs) that aim to replicate the performance of a specific market index, such as the S&P 500. They offer several advantages for young investors:

  • Diversification: Index funds provide instant diversification by holding a basket of stocks or bonds that make up the index they track;
  • Low fees: Index funds typically have lower management fees compared to actively managed funds, allowing you to keep more of your investment returns;
  • Passive investing: With index funds, you don’t need to worry about picking individual stocks or timing the market. You simply buy and hold for the long term.
Investment option Potential returns Risk level Liquidity
Index funds High Medium High
Individual stocks Variable High High
Bonds Moderate Low Medium
Real estate High Medium Low to medium
Table 1: Comparison of investment options

This table provides a general comparison and individual results may vary.

Build an emergency fund

Before diving into investments, it’s essential to have a financial safety net in place. An emergency fund acts as a buffer against unexpected expenses or income disruptions. Aim to set aside three to six months’ worth of living expenses in a liquid, easily accessible account, such as a high-yield savings account.

Consider real estate investment

Real estate can be the best investment to make in your 20s. While purchasing property outright may not be feasible for everyone, there are alternative ways to invest in real estate:

  • Real estate investment trusts (REITs): REITs are companies that own, operate, or finance income-generating real estate across a range of property sectors. Investing in REITs provides exposure to the real estate market without the need to purchase property directly;
  • Real estate crowdfunding: Certain platforms allow individuals to invest in real estate projects alongside other investors, often with lower minimum investment requirements compared to traditional real estate investments.

What are the best investments to make in your 20s?

All things considered, the best investments to make in your 20s require a combination of discipline, strategic planning, and a willingness to take calculated risks.

By starting early, diversifying your portfolio, taking advantage of employer-sponsored retirement plans, investing in low-cost index funds, building an emergency fund, and exploring real estate investment opportunities, you can set yourself on a path toward financial security and long-term prosperity.

Nevertheless, it’s key to remember to stay informed, remain patient, and stay focused on your long-term financial goals.

Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.

Best Crypto Exchange for Intermediate Traders and Investors

  • Invest in 70+ cryptocurrencies and 3,000+ other assets including stocks and precious metals.

  • 0% commission on stocks - buy in bulk or just a fraction from as little as $10. Other fees apply. For more information, visit etoro.com/trading/fees.

  • Copy top-performing traders in real time, automatically.

  • eToro USA is registered with FINRA for securities trading.

30+ million Users
eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk. eToro USA LLC does not offer CFDs, only real Crypto assets available. Don’t invest unless you’re prepared to lose all the money you invest.

Read Next:

Weekly Finance Digest

By subscribing you agree with Finbold T&C’s & Privacy Policy

Related posts