If you’re going to invest, it better be a sound decision! As a young professional in your twenties, you’re probably already balancing a lot. You’re learning to invest and how it’s like to “adult” and make your mark in the workforce. Amidst everything else, you’re also working hard to invest and gain financial independence and set yourself up on the road to financial success. Becoming financially successful is a lot easier said than done. If you’re looking for ways to invest and get started on the road to financial freedom, check out these best financial products to invest in while in your twenties.
Invest In Stocks
If you’re already done a bit of your own research, you’ll know that stocks are highly important when it comes to thinking about your financial future. Stocks come in all shapes and forms and each comes with their own set of risks and rewards. When thinking about how you’re going to invest in stocks, it’s important to keep a few things in mind.
1. Risk vs. Reward
Understand that some stocks have a higher risk that is usually associated with the company’s life expectancy, and you should be careful before you invest. While these stocks usually have higher payouts, it’s important to understand that you may not actually see that return if the company fails to pay out to shareholders. Another thing to keep in mind is that the entire stock market, no matter how seemingly solid, is still a gamble. The market fluctuates daily and will always experience natural rises and falls. While holding long term usually yields good results, it’s important not to put all your money into one avenue.
2. Know Your Goals Before You Invest
If your goal is to save for the long term, constructing a portfolio that is designed for safer, long term gains is the smartest move for you. If you’re willing to invest and take a bit more risk for short term gain, then picking a portfolio with higher risk and more reward could be the right move for you!
3. Diversify Your Stocks As You Invest
While you can pick individual stocks and companies to invest in, it’s also important to diversify your stock portfolio with other stocks that hold pieces of multiple companies. These could include the Dow Jones Industrial, S&P 500, and more.
Invest In Bonds and Mutual Funds
If you’re looking for something a little more on the safe side, bonds and mutual funds could be great additions to your financial portfolio. Let’s break these terms down!
Mutual Funds –
Mutual funds are essentially large pools of money from different investors that are used to invest in assets such as securities and bonds. Mutual fund investors own stock in companies whose entire business is investing in stocks and bonds. Why not just cut out the middleman and invest directly for yourself? Some benefits to investing in mutual funds include simplicity of investment, professional management of stocks, diversification of your portfolio, and more!
Bonds are loans made to large organizations such as major businesses and national governments. There are a variety of bonds which vary based on interest rate, risk, and length until maturity. Some major types of bonds include U.S Treasury Bills, Municipal bonds, Corporate bonds, and Junk bonds. A bond is an agreement between the creditor (you) and the organization which states that the organization will pay back your bond by the agreed upon date. Until the bond is paid back, the organization will pay interest payments to the creditor. Once the bond matures, the organization will also pay back the principal amount of the loan. Benefits of bonds include regular income through interest payments, resale value, and more.
IRA and Employer Sponsored Retirement Plans
If you’ve started working in the professional world, chances are you’ve already heard mention of retirement accounts such as 401Ks and IRAs.
IRAs or Individual Retirement Accounts come in many forms. The primary three types of IRAs include Traditional IRAs, Roth IRAs, and Rollover IRAs.
For Traditional IRAs, you would contribute money that may be tax deductible and any earnings will grow tax deferred until you decide to withdraw them for use in retirement. The benefit of a traditional IRA is primarily the fact that many retirees find themselves in a lower tax bracket upon retirement, thus they’ll be able to pay less taxes on their money in the long run.
For Roth IRAs, you would contribute money that you have already paid taxes on. This money would grow tax free and could be withdrawn tax free upon retirement.
Rollover IRAs consist of money that has been “rolled over” from a qualified retirement plan such as a 401(k).
Employer Sponsored Retirement Plans –
There are a variety of employer sponsored retirement plans, each with their own benefits. The most prominent of these plans to invest in is a 401(k). A 401(k) is a retirement plan that allows employees to contribute a portion of their paycheck to a long term savings account. Workers can invest a specific portion of their salary every year and may even be able to do so at a lower tax rate under special federal regulations. Some employers also offer a 401(k) matching program which will match a certain percentage of your own contribution to your 401(k) account.
Do Your Research Before You Invest
It’s important to remember that these are just a few of the many financial products available when you’re considering to invest! It’s always a good idea to do your research and consider your own situation when making financial decisions about your future!