Good Ways to Invest in Your Early Twenties

by Gregory Hamel
An advanced degree can boost lifetime earnings.

An advanced degree can boost lifetime earnings.

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When it comes to saving and investing for retirement, the earlier you start building your nest egg, the better. If you start investing early on in your life your investments have more time to grow, which can make a big difference in your total net worth down the road. Investing in yourself and accounts that reduce taxes can help maximize your wealth.

Education

Education is an important factor in determining your annual salary, which in turn affects how much money you can sock away for retirement. According to the U.S. Bureau of Labor Statistics, in 2012 median weekly earnings for workers aged 25 and older were $625 for those with high school diplomas, $1,066 for those with bachelor's degrees, $1,300 for those with master's degrees and $1735 for workers with professional degrees. Investing in education early in your life gives you more time to benefit from the increased earnings that come from earning a degree.

Paying Off Debts

It can be tempting to start stockpiling cash right away when you start your career, but tying your money up in stocks, mutual funds or other investments might not be a good idea if you are in debt. For instance, if you buy stocks that produce 7 percent annual returns, but you also have a credit card balance with 10 percent interest rate, your debt eats up your wealth faster than your stocks add to it. Paying off debt is essentially an investment with a guaranteed return, so it’s a good idea to make it a priority to pay off high-interest debt.

Employer Retirement Plans

A retirement plan might not seem like an exciting job perk, but an employer-provided retirement account is one of the best places to park your cash. Employer-offered plans like 401(k)s and 403(b)s let you save directly out of your paycheck on a pretax basis, which can reduce the total amount of income tax you pay during your life. Investment growth your account generates is not taxed until you start tapping into your funds during retirement. What's more, some employers offer matching contributions, which means your company will transfer extra cash into your account for each dollar you save, up to an annual limit.

Individual Retirement Accounts

An individual retirement account is a type of investment plan that you can open on your own with a financial company like a bank or stock brokerage. IRAs offer similar benefits to employer-provided plans, such as delaying taxes on investment growth and the potential to reduce income taxes. IRAs are a good option for self-employed workers and people who want to supplement employer-provided plans.

About the Author

Gregory Hamel has been a writer since September 2008 and has also authored three novels. He has a Bachelor of Arts in economics from St. Olaf College. Hamel maintains a blog focused on massive open online courses and computer programming.

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