Young adults don’t often think about setting themselves up for retirement. They have more immediate things on their mind such as finding a job, establishing a career, finding a partner in life and getting their own place to live — among other things.
But, investing early in your 20s will help you live the life you’ve always dreamed about. The longer you wait to invest, the more you need to set aside to reach your goals.
#1. Pump your 401(k)
One of the easiest ways to start investing is to put money away in an employer-sponsored 401(k) retirement savings plan. There are many advantages of doing so.
The money you put away now will be tax-free. Even if you choose a Roth 401(k) — if your employer offers it — you’ll be gaining tax benefits later in life.
The real power of 401(k) plans comes from the matching funds many employers offer. Some employers, for example, will match your contributions up to 4% of your salary. That’s free money you shouldn’t pass up.
#2. Take risks
Your 20s are the perfect time to take some investment risks. While people who are approaching retirement age are likely to invest in funds and opportunities that carry less risk, younger adults don’t have to worry about needing to use the funds anytime soon.
That’s why investing in stocks that can provide huge returns is a good idea when you’re in your 20s. You want to try to maximize your returns as much as possible when you’re furthest away from retirement.
#3. Pump money into an index fund
Outside of an employer-sponsored 401(k) plan, Michael Eisenga suggests pumping extra investment money into an S&P 500 Index Fund. These funds perform historically well, and can provide consistent, stable growth.
Since 1926, for instance, the S&P 500 index has returned an annual growth rate of 10%. That’s an incredibly consistent and powerful investment. Investing $10,000 in an S&P 500 Index Fund when you’re 25 will result in you having nearly $500,000 in your account at age 65 with that level of return.
#4. Give real estate a try
You don’t have to be a handy man, a contractor or a real estate agent to invest in real estate. You can turn instead to a REIT, or a Real Estate Investment Trust.
While REITs can be risky for some investors, they are a great fit for people in their 20s. This type of fund will allow you to invest in multiple properties compared to if you were to purchase a single property on your own. Plus, you won’t have to put in the work necessary to create a solid return on your investment.
#5. Be patient
One of the best pieces of advice for young investors is to be patient. Realize that you are investing for the long term.
Volatility in the stock market doesn’t matter much to you now. What matters is the performance of your particular interests over a long period of time.
Don’t let a down period get you down. Just keep investing, and in the end, you’ll come out on top.
About Michael Eisenga
Michael Eisenga is a successful commercial real estate investor with a banking and finance background and is the former mayor of the City of Columbus. As a President of both American Lending Solutions, a mortgage lending company (he founded and operated from 2000 to 2018), and First American Properties, he has a track record of creating and operating successful businesses. Mr. Eisenga is also devoted to property development and construction, primarily serving smaller local communities. Especially in the senior housing sector.