Should You Be Investing in Your 20s and 30s?
If you’re in your 20s or 30s, you’ve probably heard about the importance of investing, but you might be wondering if it’s wise (or really even feasible) given the financial challenges you might be facing. Between student loans, credit card debt, and the cost of living, it can feel overwhelming to think about setting money aside for the future. However, the truth is that investing early, even if it’s in small amounts, can have a profound impact on your financial future. Let’s talk about why investing in your 20s and 30s is so important—and how to do it mindfully.
Compound interest is magical
One of the most compelling reasons to start investing in your 20s and 30s is the power of compound interest. It essentially earns interest on your interest, and it’s one of the most powerful tools for building wealth over time. The earlier you start investing, the more time your money has to grow. Even small contributions made consistently over time can turn into significant sums due to the compounding effect. In other words, the money you invest today has the potential to grow exponentially, especially if you start early.
You may have heard the rule that invested money doubles every ten years - that means that even if all you invest today is $100, in forty years time, that could be over $1,600 (assuming about a 7% rate of return).
I know it’s hard to think about investing when you’re in debt
Many people in their 20s and 30s are dealing with debt, whether it’s student loans, credit card debt, or other financial obligations. I certainly did. If you’re in this situation, it’s crucial to strike a balance between paying off debt and investing for your future. While tackling high-interest debt should be a priority, it’s still possible to start investing, even if it’s in small increments. One strategy is to focus on is paying your savings before yourself - set aside automatic retirement contributions or savings contributions before you ever see them hit your checking account. Out of sight, out of mind!
Like anything: start small, but stay consistent
One of the biggest misconceptions about investing is that you need a large sum of money to get started. The truth is, you can begin with small amounts and gradually increase your contributions as your situation improves. The key is consistency. By setting up automatic contributions to a retirement account or investment fund, you can make investing a regular habit. Over time, these small, consistent contributions can add up significantly, especially when you factor in that magical compound interest.
Investment diversification isn’t as complicated as it sounds
Diversification means investing in a variety of assets, such as stocks, bonds, and real estate, to reduce the impact of any single investment’s poor performance on your overall portfolio. Many financial advisors at Legacy Full Circle Financial recommend a mix of low-cost index funds or exchange-traded funds (ETFs) as a way to achieve diversification while keeping fees low. This strategy allows you to participate in the growth of the market while minimizing risk.
How to get started investing
The first way to begin your journey toward a more financially stable future is to change your mindset around saving. It might be hard to imagine retirement right now, but think of investing as a gift to your future self. By investing early, you give yourself the best chance of reaching your financial goals, whether that’s buying a home, traveling the world, or enjoying a comfortable retirement.
Once your mindset is sound around beginning to invest, first tackle your debt. Then, start investing with a percentage of your income, no matter how small, and gradually increase it as your financial situation improves. For example, if you receive a raise or bonus, consider allocating a portion of it to your investment accounts. Additionally, consider taking advantage of employer-sponsored retirement plans, especially if your employer offers a match. This is essentially free money that can significantly boost your investment portfolio over time.
Finally, you may want to hire a financial advisor to help assess your situation and give you unbiased guidance. My advice would be to hire a seasoned professional for this - ask your network for recommendations.
Investing in your 20s and 30s may seem daunting, especially if you’re juggling debt and other financial obligations. But starting early is one of the best decisions you can make for your financial future. Remember, every little bit counts, and the sooner you start, the more time your money has to grow. Your future self will thank you!
