Investing in your 20's is not much different than investing at any pre-retirement age. Contribute as much as you can to your retirement accounts as you can without negatively impacting other key cash flow items and goals. However, what you do have when you're in your 20's moreso than any other age where you're earning income is time. When you have time, you can generally take more risk than someone who is closer to retirement. What that means is to weight your portfolio in equities as opposed to bonds or cash. Over time, stocks have outperformed other types of investments. Over the last 20 years ending in 2015, stocks have averaged over 8%, vs around 5% for bonds, and 2% for cash (savings accounts and money market accounts), so stay invested in stocks. When you're just starting out, it's difficult to determine what one stock will perform well vs another, which is why investing in a diversified mutual fund or ETF makes the most sense.
Another benefit that someone in their 20's is afforded, is the types of accounts you have access to a compared to someone who is a higher earner. For sure, invest in your company's 401k (or whatever qualfied retirement plan offered) and contribute as much as you can. If your company offers a match, make sure to contribute as much as you can to earn the full match - even if it's a bit more than you want to have deducted from your pay check. Company matches are essentially free money. Don't ever leave money on the table.
Also take advantage of a Roth IRA. Assuming your income level qualifies, someone who is a moderate income now likely be in a lower tax bracket, so paying taxes on income and contributing to a Roth now makes sense. With a Roth, you contribute to the account with after tax monies. The earnings over the next 30 or so years can be pretty substantial, and when you eventually start drawing on the account, every cent you take out is tax free. We can't forecast the income tax brackets 30 years from now, but if they wind up to be much higher for you, contributing to a Roth now will have been a great move. Regardless, tax free growth over 30+ years is huge benefit no matter your before/after tax bracket. As a single person, if you make less than $117,000 per year, you can contribute the full amount to a Roth of $5500 (2016 limits). As an example, let's say you contribute the $5500 limit each year from age 25 to 45 (keep in mind that limit will likely go up over the years, but let's go with $5500 per year for the example). If you stop contributing once you're 45 (maybe you earn too much now - good problem to have), and if you achieved an 8% return, you'd have $247,000. A nice chuck of change. If you let that lump sum comntinue to grow at 8% over the next 20 years until you're 65, it would have grown to over $1.1 million - all tax free when you start to take withdrawals.
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