6 Investing Tips for Gen Z and Millennials

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6 Investing Tips for Gen Z and Millennials

Your 20s is a great time to get into the stock market. Whether it’s in a taxable account or retirement account, investing early gives your money lots of time to grow and lets compound interest work its magic.

Why Start Now?

To understand the consequences of waiting to invest, consider this example. Let’s say you start contributing $100/month at age 25 to your retirement, and you do so for 40 years. Assuming a 7% return, you’ll end up with $260,000 in your retirement account at age 65. If you wait until you’re 35 to begin that contribution, all else being equal, you’ll have only $120,000 in your retirement account at the same retirement age. That ten-year delay would cost you over half of your retirement savings! (Check out the SEC compound interest calculator to play with the numbers for yourself.)

Tips for Investing in Your 20s

Here are our tips and strategies for investing in your 20s:

  • Invest in mutual funds, not individual stocks. The days of old-fashioned stock-picking are long gone — mutual funds offer both diversification and professional expertise, two vital components of investing.
  • Diversify. Buy funds that invest in US equities, international equities, large cap, small cap, fixed income, real estate, etc. to give yourself exposure to all areas of the market and minimize risk.
  • That said, don’t overthink it or worry about picking the “wrong” fund. How soon you start investing is more important than what you invest in.
  • Set up automatic contributions. By investing a consistent amount on a regular basis, you’ll sometimes buy when the market is low, and sometimes buy when it’s high. This strategy will ultimately allow you to buy shares at a lower average cost over time and hopefully help you avoid any temptation to “time the market.”
  • If you’re wondering what account to open first, look to your employer and see if they offer a retirement plan like a 401k or 403b. If they offer an employer match, contribute at least as much as is required to take full advantage of it. If you don’t, you’re essentially leaving free money on the table!
  • If your employer doesn’t offer a retirement plan, consider an IRA or Roth IRA. Roth IRAs are generally advantageous for young people but do keep in mind that there are income limitations involved.

Investing Mistakes to Avoid

Here are investing mistakes that 20-somethings should avoid:

  • Monitoring your investments too closely. Instead, you should set it and (kind of) forget it. Check your account quarterly to give yourself a sense of how much you’ve saved, but don’t check it regularly, especially during market swings. That will just lead to unnecessary anxiety and might prompt you to feel like you have to sell your investments when you should simply be riding out volatility in the market.
  • (Literally) buying into the latest trend. Don’t be seduced by financial sensationalism. The sooner we learn that smart financial decisions are usually not very exciting, the better!

The Advantages of Investing in Your 20s

When you’re in your 20s, your needs are likely much more straightforward. Investing for yourself now gives you more space and financial wherewithal to attend to your other goals when you get older.

People in their 30s and 40s have a lot of competing financial priorities: childcare, saving for their children’s college, saving for their own retirement, maybe beginning to help elderly parents… the list goes on. It’s a lot to juggle and can be overwhelming to decide what to prioritize.

Financial Planning with The Humphreys Group

Interested in learning more about investing and how you can get started early? Reach out to our team today.