Investing in Your 20s: What to Know

Your 20s is often a decade-long introduction to the real world of adulting. And when you add figuring out finances into the mix, it can be a particularly challenging period of life. On the plus side: You may be getting your first taste of full-time pay. But you also have to figure out how to use that money responsibly.

Taking control of your finances means prioritizing your current expenses and planning for the future. Many people who are just starting out find that there’s not much money left over after covering essentials like rent, utilities, student-loan payments, groceries and other basic bills. But even when times are tight, you still need to think about saving and investing if you ever want to be able to afford anything more.

Can’t I just wait to save and invest when I make more money?

That’s one option. But waiting means giving up the greatest financial advantage you have in your 20s: time. 

For one thing, being young means (hopefully) having many years and even decades to keep your money in the market. That gives more time for compounding to do its thing, which is to grow earnings on top of earnings. So the sooner you start investing, even with just a small chunk of change, the more time you give your money to grow. 

For example, let’s say you save $10 a week. That adds up to $5,200 after 10 years. If each week you put that money in a savings account that pays 1 percent (about average for such accounts, according to Bankrate), compounded monthly, you wind up with $5,468 after 10 years. Not a bad addition for very little extra effort on your part. Even better: By investing in a diverse mix of stocks, and earning an average 6 percent on that money, you’d rack up $7,062 after 10 years. That’s an extra $1,594 just for relocating your money. 

(The long-term historical average of the stock market is roughly 10 percent a year. So 6 percent is a relatively conservative estimate of potential investment returns.)

Can I really invest with just $10 a week? 

Actually, you can do it with even less. Where once you may have needed a few extra hundred or thousand dollars in your monthly budget to start investing regularly, now you can do it with as little as $5 to spare, thanks to the rise of micro investing. 

What is micro investing?

Micro investing is investing in super-small increments, made possible by the ability to buy fractional shares, i.e. just a piece of a single share of stock. That puts popular but highly priced stocks—such as those of behemoths Amazon (around $1,760 a share, as of mid-December) and Google parent Alphabet (about $1,350 a share)—within reach of regular individual investors, even those just getting started. 

Exchange-traded funds (ETF) and mutual funds, which are both typically more affordable than individual stocks, can be too pricey for some investors. For example, Vanguard’s S&P 500 ETF (used in some Acorns portfolios) is more than $290 a share, and iShares iBoxx $ Investment Grade Corporate Bond ETF (also used in certain Acorns portfolios) is about $128 a share. And many mutual funds have required minimum initial investments of $1,000 or more. 

An app like Acorns, though, can help you get into those ETFs and others with just your spare change. Here’s how it works: You set up your Acorns account and link it with a funding source (like a bank account) and the debit or credit cards you often use for everyday purchases. Then, through the Acorns round-up feature, whenever you use the linked card, the charge gets rounded up to the next dollar amount and pulled from your funding source. Typically, once your change adds up to at least $5, the money gets invested into your custom portfolio, a mix of funds with allocations designed to match your goals and risk tolerance. Acorns Spend card users, though, can get the round-ups from their linked purchases invested in real time. (You can sign up for Acorns here.)

Of course, investing just $10 a week or only your spare change may not be enough to fully fund major long-term financial goals, like your retirement, even with decades of compounding on your side. Still, it’s a good start. And hopefully, just getting started can show you how easy investing can be and motivate you to keep it up and to save and invest even more.

Okay, but what about the risks? 

It’s true that investing is risky. But when you’re in your 20s, time is your best financial friend when facing investing risks. That’s because while markets naturally move up and down (that’s called market volatility, and it’s totally normal), the general long-term trajectory of stocks is upward. When you start investing in your 20s, if you can stick with stocks for the long haul, you have more time to ride that wave up and recover from any stumbles you’re bound to experience along the way.

Plus, not investing can be risky, too, thanks to inflation. The current inflation rate of about 2 percent, according to InflationData.com, is greater than the average interest rate of 1 percent offered by savings accounts at the moment. (And many banks are offering even less.) Consequently, the money that you meant to keep safe is actually losing purchasing power over time.

Another way to mitigate risk while investing: Maintain a well-diversified portfolio. That means holding a wide range of investments—including a healthy mix of stocks, bonds and cash, as well as diversity in the more detailed breakdown, i.e. both foreign and domestic stocks and companies of all different sizes and industries within the stock portion of your portfolio. This strategy boosts the odds that at least some of your investments will do well even when others might flounder.