Investing in your 20s? Here’s what I’d do

It’s never too early to start investing. For a good head start, I think we should all be investing in our 20s, writes Thomas Carr.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The earlier we start investing, the better. The best time to start investing is actually when we emerge from the womb. But that’s too late for anyone reading this and our 20s represent the first real opportunity that most of us have to start.

Our 20s are a time when many of us start work and receive our first salaries. It’s also a time when we start to think about building for the future and taking financial responsibility. In terms of building financial wealth, investing in the stock market may not feel like a priority, but it’s the best option for most of us.

Why invest in your 20s?

Investing early allows our investments to compound over time. Simply put, that means we earn interest on our interest. And time is an investor’s best friend. The longer we hold shares, the better they perform. Holding decades allows us to ride out any bear markets and recessions – like the one we’re in right now. Over this kind of timescale, shares invariably move up, tracking economic growth. If we start investing regularly in our 20s, then we have the potential to make huge gains by the time we’re 60. More than anything else, this really is the path towards early retirement and financial freedom.

In theory, investing in our 20s means that we can take on more risk. There’s plenty of time for our investments to recover if they falter early on. But we need to be careful how we view risk. When I say we can take on more risk, what I mean is more risk for a given return. If we want to maximise our returns, then we need to manage risk properly.

Buy quality

It’s not an open invitation for us to start investing in speculative miners or oil exploration companies. Instead, we need to be investing in quality companies that are able to grow sustainably over a period of many years. This is the best way to make the most of the extra time we’ve got. Otherwise we risk wasting our early start.

The way that we can take on more risk is by investing in growth companies that are maybe on the more expensive side. What seems fairly expensive today, may be a bargain in 20 or 30 years’ time. When investing with such a long timeframe, we don’t need to be quite so focused on price. Investing in our 20s therefore gives us more flexibility.

It’s also important that we still diversify by investing in a number of shares, not just one or two. I’d recommend at least 10. Along with time in the market, diversifying the number of holdings is a great way to improve long-term investment performance. If one company fails, there are others that can fill the void.

All in all, investing in your 20s isn’t completely different to investing in your 50s. We can afford to pay a little more and target the sort of growth companies that can really outperform in the long run. But we should still be focused on quality companies and on diversification. The most important thing is that we start investing early and invest regularly. This is what will create the biggest gains.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Thomas has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Here’s how investing £250 a month could bag me over £10K in passive income annually

This Fool breaks down how she would go about building a passive income stream worth over £10,000 annually to enjoy…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

I’d snap this FTSE 250 stock up in a heartbeat for juicy returns and growth!

Sumayya Mansoor explains why this FTSE 250 property stock is firmly on her radar as she looks to buy stocks…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

1 dirt-cheap FTSE 100 stock investors should consider buying in June

The FTSE 100 is littered with bargains, according to our writer. She explains why investors should be taking a closer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

The Legal & General share price has gone nowhere. Why?

The Legal & General share price has performed much worse than the the FTSE 100 over the past five years.…

Read more »

Investing Articles

Where will the BT share price go in the next 12 months? Here’s what the experts say

The BT share price has been sliding for years. But after the latest set of results, it looks like the…

Read more »

Investing Articles

Are National Grid shares now a brilliant bargain?

National Grid shares look exceptionally cheap following last week's selloff. Is now the time to buy the FTSE 100 firm…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

Up more than 15%! — this small-cap company is delivering phenomenal dividend growth

There’s more good news in this company’s interim report and it may be shaping up as a decent dividend growth…

Read more »

Electric cars charging at a charging station
Investing Articles

Big news for Tesla stock investors!

Tesla has just quietly dropped a key target it set for itself just a few years ago. What does this…

Read more »