It may seem easier to think about investing when you’re financially secure or closer to retirement. But investing in your 20s is one of the best ways to achieve financial independence early.
Many people assume investing is only for retirement, but you can invest and make your money grow to help you achieve many other financial goals including short-term goals. If you haven’t thought about investing yet, here are five reasons to invest in your 20s.
Investing in your 20s means you have only time on your side. Even if you only invest a small amount, that money has more time to grow than the larger contributions you make as you get older. As the money grows, your earnings earn money, which is the value of compounded earnings.
For example, a $5,000 investment made in your 20s at 5%, and left for 40 years would be worth $35,000. If you made that same investment in your 40s and left it for 20 years, it would be worth just $13,000. The more time you give your money to grow, the more time your earnings have to compound.
Take Higher Risks
The further away you are from your goals’ timeline, the more risk you can take. Riskier investments have a higher rate of return, which makes your money work harder for you. When you invest in your 20s, you have time to ride out financial downturns than if you waited until you’re in your 40s or 50s and are closer to retirement or other financial goals.
You Have Time to Learn
There’s no better teacher when investing than experience. The more platforms you join or the more educational opportunities you take advantage of, the more ways you’ll learn to invest. Starting young gives you a chance to test the waters and continually grow your strategy so by the time you’re nearing retirement, you’ll have a solid investment strategy in place.
You Don’t Have to Invest as Much
Since your money grows with time, you can make smaller contributions and still walk away with more money, helping you achieve financial independence sooner.
When you wait to invest, say until you’re in your 30s or 40s, you’ll need to make catch-up contributions to meet your goals. Since most retirement accounts have a maximum amount you can contribute each year, you may come up short if you don’t start early.
Take Advantage of ‘Free Money’
If you’ve started your career and your employer offers a 401K match, take it. You’ll get ‘free money’ to invest in your retirement, aging, giving it time to compound. To get the employer match, you must contribute the amount they’ll match, so work it into your budget to double your retirement investments early.
The earlier you invest, the faster you’ll achieve your financial independence goals. Whether you’re saving for retirement, to buy a house, or any other large financial goal, investing now gives your money time to grow and to help you achieve your goals.