How to Start Investing in Your 20s

Investing in your 20s can set you up for long-term wealth. Many individuals begin their careers in their 20s and this is the decade when student loans are paid off, cars are purchased and you start planning for your first home. Planning for retirement might seem too far away to be real but there is never a better time to start than now. 

Thanks to the power of compounding gains, the sooner you start, the higher the growth you achieve. The years will fly by and if you have invested correctly, your retirement will be financially secure and comfortable. In this guide, we discuss the top 9 steps to start investing in your 20s. 

Importance of Investing in Your 20s 

Those who have just started earning in their 20s will not consider saving and investing as soon as the paycheck arrives. But the benefits of investing in your 20s are compounding and long-term growth. If you start by investing only $100 each month and the average rate of return is 7%, you could have about $16,000 in savings by the time you’re 30. Even if you do not invest more, this $16,000 could grow to nearly $170,000 by age 65 (at a 7% average annual return).

You can start with a small amount and if you have the means, increase this amount as much as you can. Even if you’re making $2,500 per month, you could save 10%, which is $250 to invest. While a 7% return is uncertain and not guaranteed, it is only to give you an idea of how much your money can grow. Putting the money into a tax-advantaged retirement account like a Roth IRA can ensure tax-free growth. 

9 Steps to Start Investing in Your 20s

Here are nine steps to start investing in your 20s. 

1. Determine Your Investment Goals

Before you begin your investment journey, you must be clear about your financial goals. Consider short-term and long-term goals. You could save for a house, a car or even travel in the short term. For the long term, you can save for retirement, a holiday home or plan for your family. Once you have listed your goals, set a realistic time horizon for each.

A smaller goal, like buying a car or traveling, will have a shorter time horizon than a large goal like retirement. Once you have everything listed, prioritize your goals. Each individual will have different preferences and goals and anything important should be taken care of first. Set up an emergency fund to help you on a rainy day. It can help cover expenses in case of an emergency. 

2. Assess Your Personal Risk Appetite 

Your risk appetite is the amount of risk you will take with the funds. As an investor, you need to be aware of the risk of an investment as compared to your risk appetite. Many believe that the higher the risk, the higher the return, but if you invest all your savings in a speculative investment, you could lose all your money. 

If you invested in Bitcoin in 2009, you could have lost all your money by 2015 because there was no guarantee that it would become a trend. Hence, consider factors like your income stability and financial resources to understand the level of risk you can take. 

If you have a higher income, you can take a higher risk. But it is advisable to always balance low-risk and high-risk investments to ensure diversification. Do not put all your money in one investment. 

3. Contribute to a Retirement Plan Offered by Your Employer

Smart investors must always take advantage of the employer plan for retirement, like a 401(k). This will help build retirement savings and you can have the employer offer a match on your contributions. This will double the percentage of the amount you invest. 

A 401(k) will reduce your taxable income since you contribute pre-tax dollars. However, you will pay taxes at the time of withdrawal of funds at retirement and if you withdraw your funds before age 59.5, you will end up paying fees and penalties. 

4. Find a Broker or Robo-Adviser that Meets Your Needs

If you are keen on investing in the stock market or index funds, you must look for a broker or a robo-advisor. You can open an account with a broker who will buy and sell shares on your behalf. 

On the other hand, a robo-advisor will build a portfolio based on your preferences and can suggest the right investment plan for you. They automate a large part of the investment process. Always compare your options and look for a low-cost broker or robo-advisor. 

5. Keep Short-Term Savings Easily Accessible

You can never plan for an emergency and never know what type of unexpected expense may arise. This is when you will need to access your money immediately. Open a high-yield savings account, certificate of deposit or money market account for short-term savings. 

While they will not earn as much as equities, you can access your money when needed. Look for an account that offers FDIC insurance coverage. 

6. Incrementally Raise Your Savings Over Time

It might seem overwhelming to hit a large savings goal. This is why small steps are crucial, they will build up over time. Start by investing 5% of your monthly income and keep increasing it when possible. 

Try to save 10% of your monthly income and then 15%. Achieving short-term goals can motivate you to gradually walk towards the long-term goals. Patience is the key, but you need to remain disciplined regarding savings. 

7. Choose the Right Investments

Before you park your money in any investment, you must understand all your options and learn how they work. Here are a few simple options to start your investing journey. 

Stocks

If you can tolerate a medium to high level of risk, stocks can generate significant returns for you. They are a riskier option than other conservative investment options like bonds. Stocks can generate returns in the form of dividends and capital appreciation. You can consider building a balanced portfolio, which can include 40% to 60% stocks and the remaining can be low-risk options. A long-term approach to stock investing can be fruitful.

Mutual Funds

Many investors in their 20s do not have the knowledge or skills to actively manage their investment portfolios. This is when mutual funds come into play. A mutual fund is a professional-managed fund with a diversified portfolio of stocks, bonds and other securities. It pools your money with other investors and the fund is managed by an expert on behalf of all investors.

Exchange-Traded Funds (ETFs)

An exchange-traded fund is traded on the stock exchange and the fund invests in stocks, currencies, bonds, commodities and future contracts. Since it invests in a basket of stocks, the company-specific risks are minimal. It could be more concentrated on a specific sector, like a tech ETF. Investing in an ETF is considered low risk compared to stocks and it helps with portfolio diversification. 

Bonds

Bonds are debt securities issued by the government or companies. Federal bonds are known as Treasury bonds or T-bonds and state or local municipality bonds are munis. The bond issuer will pay a certain amount of interest and return the principal after a predetermined period of time. A very low-risk investment, bonds generate steady income and have a fixed tenure. 

Money Market Funds

Money market funds are similar to mutual funds used for short-term debt securities. They offer regular income in the form of dividends and are low-risk. 

Alternative Investments

If you have the risk appetite, you might want to consider investing in alternative investments. These include real estate investment trusts (REITs), wine, real estate property, coins, comics or shoes. However, it is advisable to invest a small amount in alternative investments and ensure that it does not exceed 10% of your portfolio. 

8. Diversify Your Portfolio

It has been rightly said that one must not put all eggs in the same basket. Portfolio diversification is crucial, no matter your age. It will allow you to distribute your money into different assets and reduce risk. 

Investing in stocks, bonds, mutual funds, retirement accounts and alternative assets can achieve portfolio diversification. 

9. Consider Using the Expertise of a Financial Adviser

If investing in your 20s feels overwhelming, speak to a financial advisor who can give additional insights on the best ways to handle risk and return. They will advise you on an investment strategy aligned with your risk appetite and financial goals. 

Start Early for Wealth-Building

Don’t wait until your 30s or 40s—or until you’ve saved a large lump sum—to begin investing. Time is your biggest asset in your 20s. Even modest, consistent contributions made early on can compound into substantial wealth over several decades. Starting with just $50 or $100 a month builds the foundation of lifelong financial growth.

The earlier you begin, the more you benefit from market cycles, dividend reinvestment and the power of compounding. Waiting even a few years can significantly reduce your long-term returns.

As your income grows, increase your contributions gradually. Automate your investments to stay consistent and avoid the temptation to time the market. Revisit your goals annually and rebalance your portfolio as needed to stay aligned with your risk profile and life priorities.

Wealth-building is not about finding the perfect stock or hitting the market at just the right time—it’s about building disciplined habits, starting early and staying committed through the ups and downs. The sooner you start, the more flexibility and freedom you’ll have later in life.

Frequently Asked Questions