7 Rules for Investing in Your 20s

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Investing in your 20s is the most crucial time to invest. For one simple reason. Compound interest. A dollar in your 20’s is worth way more than a dollar in your 30’s, 40’s, and beyond. On top of that inflation is eroding your money every year so that either you move up or get left behind.

If you start investing in your 20s, there’s no telling what that money will grow into decades later down the road. I know the almost $250,000 that I have in my tax advantaged accounts will snowball into millions later down the road as long as I don’t sell and I leave the money in there for 4+ decades.

If you’re already curious about investing when you’re in your 20’s, then you know that you’re on your way onto financial literacy. It’s never going to be too late to start investing no matter what age. However, the sooner you start, the better off you’ll be later down the road.

Just the other day, one of my 27 year old friends in medical residency asked me if, “$1,000 is a good enough amount to start investing with”. I answered him with a resounding yes. When you’re young, it’s not about the amount of money you invest with.

It’s about the amount of time you have in order to invest and ride it out for the long haul. Compound interest is truly a wonderful and beautiful thing because compound interest is cumulative. The gains you earn this year doesn’t just disappear into the next year. The gains will add on to what you already have.

Rules for Investing in Your 20s:

The first rule for investing in your 20s is to SMASH that social share button and post to your favorite social media! Too many people don’t understand just how powerful investing in your 20s actually is so if this article can help out your friends, then that’s a great thing!

If anything, please share the article for me. So with that said, let’s get into the investing rules for your 20s.

1) Don’t Time the Market

I get it. You’re in your 20s. You have time. Therefore, you can afford to make mistakes along the way. However, trying to time the market will be the worst mistake you’ll ever make in your life. Not only is it unproductive and takes time away from your day job. it’s a money losing venture.

There’s a reason why there’s so few day trading millionaires yet there are tons of people who try to day trade and lose a lot of money. It doesn’t work over the long term. The first investing rule in your 20s is to not try to time the market. The best bet is to put your money in a broad market based index fund.

VOO is a great bet, though it is not a recommendation. The S&P 500 has created so many millionaires and I hope it continues to produce future millionaires as well. Timing the market is a fruitless venture. The worst part about timing the market is you will never understand just how fruitless the venture was until it’s too late.

2) Investing in Your 20s Means Looking at the Long Term

Rich people have said, “index funds are just for the middle class”. One of my friends in his 20s scoffed when I told him S&P has a history of returning 8% per year. That the returns aren’t big enough. That’s called being greedy. Greed is bad. Are there people who consistently beat out 8% per year?

Absolutely. However, trying to fly too close to the sun, you end up getting burned. For me personally, if 8% per year is enough to get me to the millionaire status, then I’m OK with that. I’m not going to get mad that “oh, I could’ve had $1.5 million instead of just a million”. I’m fully happy with being a millionaire.

Investing in your 20s is making those consistent contributions to your investment accounts. And looking at your investment accounts over the long term. A decade is a great amount of time in order to get the returns that you’re looking for. Maxing out your 401k over 10 years will produce wonderful results.

3) Take Advantage of the Company Match

Investing in your 20s by taking advantage of the 401k matching.
Matching makes a huge difference.

The ones who are working for a company that offers a match who don’t take advantage of them are downright spoiled. It’s the classic case of, “I have it but I’m choosing not to take advantage of it”. This is an absolute must for investing in your 20s. You HAVE to take advantage of the company match.

That is free money that you’re leaving on the table if you don’t take advantage of it. Company matches are already factored in as a part of your compensation. If you don’t take advantage of it, it’s illogical to complain about being underpaid. Taking advantage of a company match can instantly give a 6% raise.

Investing in your 20s is taking advantage of every advantage that’s been offered. A 100% return on 6% of your money is unheard of. No other investments give you that much of an instant return on your money. On top of that, it’s tax advantaged! Never neglect this free money.

4) Put Ego Aside

Investing in your 20s means putting your ego aside.
Ego destroys investors more than anything else.

Investing in your 20s will feel like a highly egotistical thing. How can it not? I mean, investing is about who is winning or losing money. When there’s an emotional subject such as money involved, investing can get egotistical. I remember in 2018 when the S&P turned from positive to negative, I felt awful.

Truly awful that I had lost that much money in that short amount of time. Set this ego aside and just put your head down and invest for the long haul. Consistently contribute towards your 401k, Roth IRA, and HSA. I invest approximately $30,000 per year in tax advantaged accounts.

Whether the market is doing well or whether the market is doing bad. The rest of the money goes to my after tax brokerage accounts. Which is completely great with me as well. I know that the more money I invest, the more money I’m going to have later down the road. It’s about protecting my future.

5) Simplify Everything

Investing in your 20s doesn’t have to be complicated. There’s no need to look for the next Tesla that’s going to give you a 100x return. You can keep it simple by investing in index funds. That’s the most simple investing you can ever possibly do. It’s complicated to look for the next 100x bet.

it’s complicated to look for the next Shopify that’s going to pay for your life 10x over for the next 20 years. The great news is that there’s no need to. You can easily be happy with an annual 8% return by simplifying everything. You’ll have more free time on your hands to do other projects.

Like starting a side hustle, relaxing with friends, and the like. Going with a proven strategy isn’t a bad thing at all. Past results may not be future results. However, that doesn’t mean that it’s always going to be a bad idea. It leaves you time to focus on other projects and/or work on building relationships.

6) Invest as Much Money as You Can

Investing in your 20s has the greatest impact to your life above anything else. Therefore, it’s in your best interest to invest as much money as you can. I’m very cash poor right now because I invest so much into the markets. However, I’m OK with that. I don’t mind putting everything aside today for a better tomorrow.

I don’t mind sacrificing today for a better tomorrow. $100 per month that you invest today will pay so much in dividends when you’re in your 30’s and/or 40’s. You’ll be amazed just how much it makes a difference down the road. It’s a given that you should be maxing out your 401k.

When I first started out on a $52.5k salary, I maxed out my 401k. I felt so poor every paycheck but I was OK with it because I knew it was for my future. Fast forward six years later, I don’t regret a single second of doing it. Now, I have a little bit of extra money even after investing in my 401k. It’s wonderful.

7) Just Start

Investing in your 20s means starting as soon as possible.
Take the first step.

The biggest investing mistake you can make is to say, “I’m young, I have enough time to invest later down the road”. No. That’s the worst investing mistake you can ever make. You HAVE to start in your 20s. It’s not enough to invest a lot 10 years down the road.

Someone making $100k in their 20’s and starts investing in their 30s will always lose against the one making $70k in their 20s and starts investing at 20. It doesn’t make a difference for the first 5 – 8 years. Until years 10+ comes around then it starts making a whole lot of sense.

Investing $100 per month doesn’t make a difference.. until it does. It snowballs into amounts that you can’t even imagine. Investing in your 20s means starting today. You can’t depend on anyone else but yourself for your financial future, freedom, and independence. It doesn’t work like that.

Investing in Your 20s Differentiates Yourself

So many of my friends are making high incomes yet so many of my friends are living paycheck to paycheck. They just don’t understand how important investing in your 20s is. They want to do their best finding the next Tesla bet that they waste time and money trying to get there.

College graduates have so much pent up demand with their money. They lived in poverty and lived poorly throughout college so they go out every weekend because they think they deserve it. So they spend money buying new clothes and fancy dinners trying to impress others.

Others who couldn’t care less whether they’re doing well or not. Others are worried about themselves, first and foremost. When you’re investing in your 20s, it differentiates you. It separates you from the rest of the crowd who has this consumerist mindset.

You don’t want to be like everybody else. You don’t want to go through the day to day life being the same as everyone else. The average life isn’t the best life to live. They’re full of the consumerist mindset and have a need to spend as much money as they can on stuff they’re not going to use.

Investing in your 20s means that you’re differentiating and getting ahead while others are falling behind. Your choices are the true equalizer. Your decisions are going to make the difference whether you retire as a multimillionaire or whether you retire with nothing in your savings, like the rest of them.

Investing in Your 20s Matters the Most

Now’s the time to do it. Now’s the time to actually go out and make prudent financial choices that’s going to set you up for life. It’s never going to be too late to start investing. That’s completely true. However, it’s time to start investing when time is completely on your side.

You don’t want to race against time because time is always going to win. No matter what you do, you can’t win against time. You want to invest when you have the means to do so. When you have the power of time working for you, not against you. Time is the most valuable asset you have.

When you invest a lot in your 20s, many people will make fun of you. They will rib you for spending so much money buying assets instead of spending so much money buying stuff. It’s your job to ignore the noise and continue down your path. It completely depends on what you’re interested in.

Are you interested in amassing as much stuff as you possibly can or are you interested in reaching financial freedom where you have complete control of your time? Some prefer the former rather than the latter, and that’s OK. If you prefer having control over your time over anything, investing in your 20s is the way to go.

Freedom is worth much more than any amount of stuff that sits in your garage or storage shed. Investing in your 20s will have the greatest impact to your future life than anything else that you can think of. Take advantage of the one decade in which that has the greatest impact to your financial future.

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