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November 15, 2017

4 Investment Tips for Those in Their 20s

Investing is not something that many people in their 20s really think about. It’s something they’ll do at some vague point in the future, when they have more expendable income. But waiting until later in life to begin investing greatly minimizes the potential returns on your investments. If you wait to start investing until you’re in your 30s, you’ve lost thousands of dollars in interest and dividends.

Your 20s is a great time to begin investing, because you have a long time before retirement, and a longer period in which to shake off any declines in the market. So, if you’re a 20-something who’s ready to start investing, start with these 4 tips.

Start with 401(k) and Roth IRA

The first place you want to start investing is in your 401(k). Most employers even offer some sort of contribution matching program, which is free money towards your retirement. Do your best to max out the matching potential every month.

If you’re looking or a secondary investment, open a Roth IRA. You can contribute up to $5,500 per year, and since you pay all the taxes upfront, it’s non-taxable income for later in your life. This is a big benefit for many people in their 20s, who are often in a lower tax bracket than they will be later in life. And, if you can, contribute every month, instead of just once a year; monthly contributions generate a larger return over a 10-year period.

Let Someone Else Invest for You

Most 20-somethings aren’t financial experts. And while you may feel like you could learn the market and handle your own investments, odds are, you’re wrong. Acknowledge the fact that you aren’t a stock market guru, and let someone else handle the investments on your behalf.

Many financial institutions offer investment services at a small fee, so talk to your bank about what they offer, and see if they can handle your investments for you. All you have to do is select how aggressive you want to be with your investments (see above), and they’ll handle the rest. You’re more likely to get a good return on your investment this way, and you won’t have the stress of constantly managing your own investments.

Don’t Buy into Penny Stocks

A growing number of young investors are being lured in by penny stocks. But if you really want to make smart, long-term investments, you should avoid these. While it may seem like a good idea, because the initial investment is smaller, you’re less likely to profit from these investments. You might get fewer shares for your money with a higher-priced stock, but the more expensive stocks are going to have more regulations in place, which can help to mitigate risks for you.

Overall, penny stocks are kind of like slot machines. They may only cost a quarter to buy into them, but if you keep dumping quarters in, you’re still losing money, with a very low chance of winning anything back. But if you buy into a $5 blackjack table, your odds of winning go up.

Invest in Your Own Competencies

Everybody has their own areas of expertise. And while yours may not be finance, you can use your area of expertise to help guide your investment decisions. For example, perhaps you’re an expert in the world of technology. That means you’re up to date on all of the latest technology trends, and know who the big, upcoming names in the industry are. That means you can make smart investments in this industry, because you’re an expert in it.

As successful young investor Tai Lopez put it: “First rule of investing your money - only invest in your core area of competency, don’t chase shiny objects.” Even if your core area of competency isn’t in what appears to be a high-yielding area, stick with it. Your knowledge in the area will help you to turn a profit on your investments in less time than a higher-yielding area you don’t know anything about.

Have you found success in your early investments? Join the discussion and share your pro tips with others!

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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