We’ll keep it simple and to the point with these 5 reasons to begin investing in your twenties. People entering retirement often say “If I’d only started investing in my twenties, I’d have so much more money right now.” If that’s the case, why don’t more people start investing in their twenties? These are just five of the reasons I’ve heard:
I can’t start investing now, because…
1) “I don’t have enough knowledge”
Not knowing where to begin is one of the greatest deterrents for young investors. Stocks, bonds, asset classes? There’s way too much to learn and it’s a daunting task for a beginner investor.
2) “The investing world isn’t designed for people in their twenties”
Unfortunately this feels very true. Only recently, with the advent of robo-advising, has this begun to change. I recently tried to open investment accounts at multiple investment offices in town. In all but one I was turned away and told to “go online.” I responded to one of these gentlemen in a suit with “But I’m already here. Can’t I just talk to someone?”
-“Even if you talk to someone here they’re going to have you just do it all on an iPad,” he replied, all but ushering me out the door.
This left me wondering what exactly the point of a brick and mortar investment office was.
When I finally went to Bank of America, they did me the service of at least sitting down with me and making me feel like a grown-up. But then it took a turn for the worse when I told the representative how much I planned on putting in the account: $5,000. You would have thought I asked him to put on a tutu and dance for me. I can’t blame him, though. Most firms have account minimums and have to turn away investors who do not meet those numbers.
3) “I don’t have enough money to invest”
I’ve spoken to many young people who think they don’t have enough money to start investing. They’re waiting for some magic number in their bank account that is going to signify it’s time to start planning their financial future. Well, there isn’t one. If you can pay for rent and food, it’s probably time to start thinking about investing. Especially since you can now open investment accounts with as low as $50.
4) “I have plenty of time to do this”
I think this is the most foolish thought of all. You quite literally cannot afford procrastination in this area of your life. Less money for retirement means you’ll be scrambling when you’re too old to work.
5) “I don’t know what I’m doing, I don’t have time to learn, and I can’t afford an advisor”
Paying a traditional advisor when you just begin acquiring wealth is difficult for two reasons. First, advisors may not take a client who does not meet their account minimums. Second, the traditional advisor fee is about 1.25%. For most robo-advisors, it’s 0.5%. A percentage-based fee (no matter how seemingly low) means your advisor will take more money from your retirement account the more you earn. You should keep the money you’ve grown in your portfolio and therefore only consult an advisor that charges low flat rates.
So now that we’ve covered five of the excuses we use to talk ourselves out of saving for retirement in our 20s, let’s talk about the 5 reasons why you should start.
You should seriously consider investing in your twenties because…
1) The Law of Compounding Interest is mathematical proof
The simplest way of explaining compounding interest (without actually discussing the math here) is: if you start investing early, time will help you achieve greater growth and higher returns. At its core, it means the sooner you start, the better chance you’ll have of achieving your financial goals. For more information on this concept, see Investopedia’s explanation on the matter.
2) You can’t work forever
This point addresses why we need to invest and save for retirement in the first place. We work to make money. But what happens when we are too old to work? The way we supplement our income at this point in life is through our retirement savings and investment accounts. Putting in small amounts now will lead to big rewards later on in life.
3) The earlier you start the more aggressive your investing can be
We’ve all heard the old adage “no risk, no reward.” The nice thing about beginning to invest in your twenties is you have the opportunity to invest more aggressively. There is a little more freedom to do this when you’re younger and this can mean greater returns. With that being said, different personalities usually will have varying risk tolerances. Luckily, if an investment management firm takes the time to learn your personality and understand your appetite for risk, you can avoid investment decisions that keep you up all night worrying about losing money. Nevertheless, we can agree that the earlier you get started the easier it will be stomach riskier investments.
4) Don’t rely on Social Security for income
With the influx of baby boomers beginning retirement there are now more people drawing from social security than paying into it. Younger generations should plan for their retirement as though social security will not exist. It’s predicted that 85-95% of the Gen Y’s and Millennials retirement income will need to come from their own saving efforts.
5) Price is no longer a deterrent
There should be nothing stopping you from opening an investment account. If a lack of time or investment knowledge is what’s preventing you from taking control of your financial future, it’s no longer too expensive to pay for one to be professionally managed. Robo-Advisor firms have changed the industry and brought simplicity and accessibility to investors of all experience levels.
New to FC360? We can build you a customized portfolio and manage it for only $3 a month for all accounts under $20,000. Investing has never been easier and you can get started with as little as $50. Request a free wealth management consultation today.