If you’re like most people in their 20s, you may be wondering where to start when it comes to building a solid financial foundation. Knowing which assets are the best for securing your financial future can feel overwhelming, from the stock market to real estate and everything in between.
Since you’re reading this article, you’re obviously interested in your financial future. Your 20s are essential years for personal finance, even if it seems like you’re too young to worry about financial matters. The decisions you make now will have a massive impact on your financial future. Now is the best time to save and invest because you have many years and decades to compound and grow those investments.
But knowing what to invest in is just as important as deciding to invest. In this article, we’ll cover the best assets to buy in your 20s so you can set yourself up for long-term financial success.
This article should not be taken as investment advice. If you need personalized guidance, please seek the assistance of a financial professional.
Best Assets to Buy in Your 20s
Investing in the right assets is one of the best ways to build a strong foundation that will carry you through the rest of your life.
Building a solid financial foundation can be difficult, especially during uncertain times. But there are some tried and tested things that you should consider investing money into to ensure financial security later on down the line.
1. Index Funds
Index funds are an excellent long-term investment for young adults. This type of mutual fund is designed to track a specific market index, such as the Standard & Poor’s 500 (S&P 500). Index funds aim to provide investors with a diversified portfolio that closely matches returns from the overall stock market or the specific index being tracked. They generally offer low fees and can give young adults an easy way to build wealth while taking on less risk than individual stocks.
There are several reasons why you might want to invest in index funds. For starters, they tend to cost less than actively managed mutual funds, giving you more bang for your buck and reducing investment fees.
Additionally, they’re easy to manage and understand since they track widely recognized indexes like the S&P 500. Index funds don’t require frequent trades or close monitoring. Busy 20-somethings who don’t have time to research and manage their investments can participate in the stock market without as much effort or risk.
Most importantly, index funds are simple. It’s common to assume that financial matters and investments are complicated, but that’s not true of index funds. Sometimes simplicity is best.
Finally, index funds tend to perform well. Of course, the performance varies from one fund to the next, but investing in the market is a solid and proven approach. Very few people can beat the overall market returns over the long term.
Of course, investing in the stock market always involves risk. However, the level of risk is minimized for long-term investors. If you plan to keep the investment for decades, the short-term risks of market drops aren’t all that significant or relevant. The stock market has a proven track record of going up over long periods.
Overall, index funds are an excellent option for people in their 20s who want to invest in the stock market but don’t want to spend too much time researching and managing their investments.
2. Primary Residence
Buying a home is one of the best investments a young adult can make. It can provide long-term financial security and stability and help you to build equity over time.
As you pay your mortgage each month, the equity in your home increases (unless home values are dropping). This increase in equity is one of the foundations for your wealth and growth in net worth.
In addition to building equity, owning a home also comes with potential tax benefits. Homeowners may be able to deduct some of their mortgage interest from their taxes and potentially qualify for property tax deductions, depending on their situation.
If you buy a home with a fixed mortgage rate, your monthly principal and interest payment will remain the same for the life of the loan. For example, if you have a 30-year mortgage, your mortgage payment (not including property taxes) will be the same for the next 30 years or until the mortgage is paid off.
On the other hand, if you rent, your monthly rent payments are likely to increase significantly over the years.
Buying a primary residence is an excellent investment for young adults who plan to stay in the same area for several years (or decades). The exception is if you’re likely to move in a few years. In that case, renting probably makes more sense due to the costs of buying and selling a home.
3. Investment Real Estate
Rental properties present an excellent opportunity to build wealth and increase cash flow. Investing in rental properties can provide a steady source of income, and the value of the properties can also increase significantly over time.
When managed correctly, rental properties can generate passive income and offer a solid return on investment due to appreciation. Rental property owners also benefit from potential tax advantages (speak to a tax professional for personalized advice).
Rental properties also tend to be less volatile than other asset classes like stocks and mutual funds, which makes them attractive to young adults who want to diversify their investment portfolios with less risk.
These income-generating assets have long-term value even during times of economic downturn or crisis. You won’t want to sell a property during a down housing market. However, the rental property can continue to generate income, and you can wait until the value goes back up before selling.
If you like the idea of owning rental property but don’t want the responsibilities of being a landlord, you can invest through Arrived. This platform focuses specifically on single-family rental properties. You can buy a share of a rental house and earn quarterly dividends from the rental proceeds. It’s also easy to start since the minimum investment is just $100.
Crowdfunding is another way to invest in real estate. Fundrise is the most popular platform, making it easy to invest in a diversified portfolio of income-generating properties. It’s completely passive, so it doesn’t require any of your time. Fundrise has an excellent track record, and you can start with as little as $10.
4. Retirement Accounts
Investing in a retirement plan like a 401(k) or IRA is one of the best financial moves you can make as a young adult. Retirement may seem a long way off for young investors, but these years are the best time to invest. Investing in your 20s gives your money plenty of time to grow and compound.
Retirement accounts also offer tax benefits. Qualified contributions to a 401(k) or Traditional IRA are made pre-tax, which means it can reduce your taxable income. Your money will also grow tax-free (withdrawals will be subject to tax).
Also, many employers offer matching contributions for 401(k)s, so it’s essential to contribute at least enough to get the entire match. Passing up the employer match is like choosing not to take a raise or turning down free money.
Contributions to a Roth IRA are made with after-tax dollars, but your earnings grow tax-free and retirement withdrawals are tax-free.
Investing in retirement accounts prepares you for financial success later in life and offers valuable tax benefits.
Investing early and regularly gives young adults plenty of time to take advantage of compounding growth over their lifetime. This makes it easier to reach your retirement goals and gives you more control over your finances when you retire.
5. Dividend Stocks
Dividend stocks provide a way to collect passive income from your investments. These companies pay out regular cash dividends to shareholders, which can be reinvested if you don’t currently need the extra income. Reinvesting allows you to buy more shares, which helps you earn more dividends in the future.
If you have an investing account with a broker like Vanguard or Fidelity, you can research and purchase individual stocks. You can also use commission-free trading apps like Public, Webull, and Moomoo. Public is an excellent choice for dividend stocks because a dividend reinvestment plan (DRIP) that automatically reinvests the dividends to buy more shares.
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Dividend stocks are popular for a few reasons:
- These stocks are usually well-established companies with long track records of paying dividends.
- Dividend stocks are generally considered less risky than the overall stock market because they tend to have more stable earnings and payouts. They tend to be less susceptible to economic downturns.
- This simple long-term buy-and-hold approach doesn’t require much effort to maintain the portfolio.
- The dividends can be taken as cash and used for living expenses in retirement (including early retirement).
See our Dividend Aristocrats list for some specific ideas.
6. Online Businesses
This one is not for everyone, but online businesses can be an outstanding investment in the right situation. You could invest money into building your own business or buy an existing business that’s already profitable.
Many different online business models offer unlimited potential. E-commerce and content-based websites are extremely popular. You could also invest in a software as a service (SaaS) company or digital products.
The beauty of investing in an online business is that you can build and grow your own asset. It’s possible to create something that will provide passive income for years, and the potential returns can be much higher than traditional investments.
Online businesses do require more work upfront, and some businesses also need a lot of effort to run. However, a profitable business is a valuable asset you can sell at some point in the future.
There are many places to find existing businesses for sale, including Flippa, Empire Flippers, and Quiet Light. There are also many Facebook groups for buying and selling websites. These Facebook groups tend to have lower-priced businesses for sale, so it can be an excellent place to start.
7. Other Income-Generating Assets
You can also think outside the box and consider income-generating assets and alternative investments that don’t fit into the categories mentioned above. Here are a few other potential sources of passive income:
- Peer-to-peer lending: Investing in peer-to-peer lending involves making loans to individuals or businesses through an online platform. The returns tend to be higher than you’d get from a traditional bank savings account, but there’s more risk involved as well.
- Royalties: It’s possible to generate passive income by investing in royalties. You can invest in music, books, and other creative works. This type of investment involves more risk than many traditional investments, but there’s also potential for excellent returns. Royalty Exchange is a leading platform.
- Low-maintenance businesses: Many different types of businesses don’t require much work to maintain them. For example, self-serve laundromats, car washes, vending machines, ATMs, etc. See more in our article on low-maintenance business ideas.
Investing in Your Education and Career
While it’s not an asset to buy, investing in yourself may be one of your best investments. Investing in your education and career can pay off for years as you increase your income. Learn a new skill, attend seminars or workshops, read books and articles related to your field – all of these things will help you stay ahead of the curve and position yourself as an expert in your field.
Investing in your education and career allows you to make more money in the future. You can also use your skills to start a business instead of staying in a traditional job.
FAQ About Investments for Young Adults
It depends on your individual circumstances. Buying a home in your 20s can be a great way to start building equity and creating wealth for the future. However, ensuring you have enough money saved up for a down payment and other associated costs is essential. Also, ensure you’re prepared for the long-term financial commitment of homeownership. If you’re likely to move within the next 3-5 years, renting is likely to be better financially than buying.
Investing in your 20s is important because it gives you time to take advantage of the power of compound interest. The earlier you start investing, the more money you can earn over time. It’s also important to invest in yourself so that you can develop the skills and knowledge necessary for long-term career success and financial security.
Final Thoughts on the Best Investments in Your 20s
As you can see, there are many different assets that you can buy in your 20s. It’s important to research and find an asset that fits your budget and risk tolerance. Investing in the right asset will help ensure you set yourself up for financial success later in life.