Like a lot of 20-somethings, you might be having some FOMO because your friends are already trading on apps like Robinhood, Acorns, or E*Trade.
A plethora of trading apps has made it even easier than ever to begin investing without a lot of money. Over two million people have utilized Robinhood to purchase individual stocks like Apple (AAPL), without having to cover a trading commission.
But should you want to be smart about investing your funds, almost any Certified Financial Planner will tell you to steer clear of purchasing individual stocks.
An ETF (exchange-traded fund) can provide you a bit more exposure to the wider market, but that’s still not like a balanced portfolio with an assortment of bonds and stocks.
Many 23-year-olds are not swimming in extra cash, and there might be much better things to do with you money before investing in the stock exchange.
That is your lifeline if you shed (or stop) your occupation or an unanticipated health scare attracts on a ton of medical bills. You want to have this money on hand for when you want it and not need to worry about losing a few when the market drops.
If you really feel the need to start using your own money, Virtual Portfolios are a good way to feel like you’re allocating your money without incurring the financial risk.
Second, get a handle on your monthly expenses, including any student loan bills. Pay off high credit card debt before even considering investing.
Third, determine what your goals are. Ask yourself: What are you currently saving this money? This can allow you to figure out whether to invest your money, how much to invest, and everything to put money into.
Perhaps you’re saving for a wedding, an engagement ring, even beginning your own business, or buying a home. If the objective is coming up at another four decades, do not put that cash in the stock market.
Keep it in a savings account or CD. Online savings accounts generally offer a higher return than big banks, which offer an average .06% APR.. CDs tend to pay greater interest, but your cash is locked in for a certain period of time.
I would not even get a brokerage account in that age (23) unless it’s for a longer-term goal you’ll strike ahead of retirement,” explained McFadden, founder of Panoramic Financial Advice.
Start with a 401(k) if your employer offers one. Here, you are confined to the investment options provided by the provider. There are often some low-cost bond and index funds. Do not be scared to create an aggressive portfolio in your 20s so that 80 percent is in stocks. You might be given a target date fund which automatically sets your investments based on your age and changes them over time.
A Roth IRA is also a good spot to save for retirement because it has tax benefits you do not get using a broker account. Access into the investment earnings in your Roth IRA is somewhat restricted, but you always have the option to withdraw the money you contributed with no tax consequences or penalty.
When you decide it’s the right time for you to start a brokerage account, experts do not recommend going it alone.
You may not have enough cash to work with a few financial planners. However, you can find many others who will meet you for a flat fee. Utilize the Financial Planning Association or the XY Planning Network — which focuses on helping younger investors to look for a fee-only advisor locally.
You can also produce a portfolio with the support of a robo-advisor for a small charge. Ordinarily, you fill out a brief questionnaire about your age and income and are provided with an appropriate portfolio.
Betterment is a favorite of several financial planners because you can begin with as little money as you need and it costs a low annual fee of 0.25%.