If you’re tired of living paycheck to paycheck, it might be time to start investing in your 20s. But why bother starting now? If you invest now, your money can grow while you’re in your 20s and 30s, leaving you with plenty of extra cash to spend on the future when you’re older and don’t need it as much. On top of that, there are plenty of tax advantages that come with investing early, giving you even more reasons to start soon rather than later.
1) Investing allows you to grow your wealth faster
When you invest, your money has the potential to grow through compounding. That means that the money you make from investing can be reinvested and earn even more money over time. Additionally, starting to invest early gives you a longer time horizon to reach your goals. And since you’re likely taking on less financial responsibilities in your 20s, you may also have more risk tolerance, which can lead to higher returns. Lastly, contributing to a retirement plan in your 20s gives you a chance to take advantage of compound interest and have a larger nest egg when you retire.
With more time and money invested, your chances of reaching your goals increases. The earlier you start investing, generally speaking, the better off you’ll be. And while we recommend maxing out an 401(k) or 403(b) plan if possible, but you can only contribute so much before it begins to impact your take-home pay. That’s where a Roth IRA can come in. With a Roth IRA, your contributions are tax-deductible-but your withdrawals are tax-free once you meet certain requirements. That allows you to grow your wealth faster.
2) It gives you time to learn more about investing
When you’re first starting out, there are a lot of things you don’t know. That’s okay! The important thing is that you start investing now so that you have time to learn and grow as an investor. By starting early, you’ll also be able to take advantage of compounding, which is when your investment earnings are reinvested and begin to earn money on their own.
Additionally, when you start early, you’ll have time to see your retirement plan through. Market downturns can be scary, but being young means you’ve got a lot of years ahead of you and a lot of investment time to make up for any losses. The best way to deal with financial setbacks is with a long-term mindset and by staying invested through market ups and downs. Instead of pulling out during volatile times, keep at it! You can ride out any dips with proper diversification.
3) Young Investors can take advantage of compounding
When you’re young, you have time on your side. One of the most powerful forces in investing is compounding, which is essentially earning money on your money. The earlier you start investing, the more time your money has to grow. And since compound interest is exponential (meaning it grows at an increasing rate), the sooner you start, the more significant your results will be.
The earlier you start investing, you can benefit from an advantage called compound interest. Essentially, investing your money and letting it sit over time causes that amount to grow larger and larger over time. When you first put $1,000 into a retirement fund, for example, it may only earn 5% interest in its first year. In year two, however, if that $1,000 earned 5% again, your balance would be at $1,050 — growing your original investment by 50 cents.
4) Young investors are more optimistic and less risk averse
Starting to invest in your 20s has a number of advantages. For one, you’re more likely to be risk-tolerant when you’re younger. This means you can afford to take more chances with your investments, and you’re more likely to see higher returns as a result. You also have the benefit of time on your side. The earlier you start investing, the longer your money has to grow. And lastly, starting early gives you a chance to learn from your mistakes. The more experience you have, the better investor you’ll become.
Statistics show that younger investors are more likely to invest than their older counterparts. People between 25 and 34 years old make up nearly half of all investors, and their likelihood of investing is higher than any other age group. Younger investors also tend to be more optimistic about the future and less risk-adverse—two traits that often lead them toward risky investments, but can also help them succeed. There’s one downside: younger investors may have less money saved up for retirement since they started investing later in life.
5) Historical data shows young investors do better than older ones
If you start investing early in your life, you have a greater chance of reaping greater rewards. That’s because historical data shows that young investors outperform older ones. When you’re young, you have more time to ride out the ups and downs of the market. You also have a longer investment horizon, which means you can afford to take more risks. And since you’re likely to have a higher income in your 20s than later in life, you can afford to invest more money now. All of these factors give you a big advantage when it comes to investing:
- When it comes to investing, age ain’t nothing but a number. In fact, historical data shows that young investors tend to outperform their older counterparts.
- One of the reasons for this is that younger investors have more time on their side. They can afford to take more risks and ride out the ups and downs of the market.
- Another reason is that young people are generally more comfortable with technology than older folks, which means they’re more likely to use online tools and platforms to manage their investments.
- And let’s not forget about the power of compounding interest! The sooner you start investing, the longer your money has to grow.
- Starting early also gives you more time to make a sizable impact on your long-term goals.