Investing simply means putting your money in financial products and hoping it returns a profit.
While investing usually has a higher return than saving, investments usually don’t have federal insurance as savings accounts. Common investment products include mutual funds, exchange-traded funds (ETFs), and real estate.
Young people have a significant advantage in terms of investment. If you start in your 20s, you have the opportunity to add significantly more wealth.
When it comes to investing, both new and experienced investors have some options to consider. You can work with an investment company like Questergate to invest based on your financial goals. Or you can choose your own investments through an online brokerage account, many of which have an investment mobile app.
Below are some of the benefits of investing in your 20s
- The Compounding effect
The most significant benefit of investing in your 20s is how the compensation will affect your portfolio.
The compounding occurs when you reinvest your earnings and those earnings start working and earning more money for you. Thanks to compounding interest, you can invest less per month from an early age to retire with just as much when you are much older.
If you had a goal to reach $1 million by age 65, if you start investing at age 25, you only need to pay $190 a month into an investment account to reach the $1 million goal by age 65.
But If you waited until you were 35, you would have to pay more than $500 a month to reach this goal at the age of 45 suppose you are looking for a 10% annual stock market return.
- You will make mistakes and learn lessons earlier
No one is an expert if you are a novice investor, regardless of age. The advantage of investing in your 20s is that you often have the opportunity to make mistakes and eliminate them.
If you make a costly mistake with your portfolio at age 50, it could severely set your retirement back on track. But if you make the same mistake at the age of 20, you will have plenty of time to recover your losses.
- Your tech-savvy nature will help you a lot
In general, the younger generations are generally considered to be more proficient in technology than the older generations, and this trend is no different in terms of investment.
For example, younger investors are better able to navigate trading applications or rely on technology to manage their investments. As evidence, we can see the growing popularity of Robo consultants.
Investors in their 20s may be more aware of the technology-driven companies that have disrupted industries. These companies can make smart investments if they continue to innovate and grow in the years to come. A typical example like, Uber and Airbnb disrupted the taxi and home rental/hotel sectors, respectively.
Both are public companies in which investors can buy shares. If they continue to innovate and grow, the current investment can pay for itself in 20 or 30 years. Although not guaranteed, investors around the age of 20 have more time to take on these types of risks.
- Longer Time Horizon
This just means that if you plan to retire at 65, then your time horizon is 40 years – that is if you started working at the age of 25 and plan to be retired at 65. Your time horizon refers to the expected amount of time before you use the money you’re investing.
- Take precautions still
Investing in your 20s is a unique advantage over the long term, meaning you can afford to take more risk and have more time available for your money. But that doesn’t mean it’s safe to throw caution to the wind.
Higher-risk investments can mean higher returns, but they also increase your chances of losing your money altogether. Each type of investment carries a certain level of risk and it is important to be aware of this.
Now that you know what the benefits of investing in your 20s are, it is advisable to begin your journey now so as to enjoy the fruits very much later.
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