Your 20s are one of the most powerful decades of your life when it comes to building wealth. You may not have a large income yet, but what you do have is time—the most valuable asset in investing. Thanks to the power of compound interest, the earlier you begin, the more your money has the chance to grow. So, what’s the best way to start investing in your 20s? Let’s break it down.
1. Build a Strong Financial Foundation First
Before jumping headfirst into the stock market, make sure your financial base is solid.
- Emergency Fund: Save at least 3–6 months’ worth of living expenses in a high-yield savings account. This ensures you won’t be forced to sell investments when unexpected expenses pop up.
- Pay Off High-Interest Debt: Credit card debt often has interest rates of 20% or more. Paying this off is essentially a guaranteed return on your money.
2. Take Advantage of Employer Retirement Accounts
If your employer offers a 401(k) or similar retirement plan, especially with a company match, it’s one of the easiest and best places to start.
- Contribute at least enough to get the match. For example, if your employer matches 50% of your contributions up to 6% of your salary, you’re leaving free money on the table if you don’t participate.
- Pick target-date index funds. These funds automatically adjust your risk as you age, making them beginner-friendly.
3. Open a Roth IRA (or Traditional IRA)
A Roth IRA is an excellent tool for young investors. You contribute after-tax money, but all the growth and withdrawals in retirement are tax-free. Since you’re likely in a lower tax bracket in your 20s than you will be later in life, a Roth IRA can be a smart move.
- 2025 contribution limit: $7,000 per year (higher if you’re 50+).
- You can start with just a few hundred dollars and set up automatic contributions monthly.
4. Focus on Low-Cost Index Funds & ETFs
Instead of trying to pick individual stocks (which is risky and time-consuming), consider index funds and ETFs.
- These track broad markets like the S&P 500 or the total stock market, giving you instant diversification.
- They have very low fees, which means more of your returns stay in your pocket.
5. Automate Your Investing
The simplest way to build wealth is to set it and forget it.
- Automated contributions—set up a monthly transfer into your investment accounts.
- This approach also allows you to practice dollar-cost averaging: investing a fixed amount at regular intervals regardless of market ups and downs. Over time, this reduces risk and smooths out volatility.
6. Don’t Fear Risk—But Stay Diversified
In your 20s, you can afford to take on more risk because you have decades to ride out market downturns. This usually means:
- A stock-heavy portfolio (80–90% stocks, 10–20% bonds or cash).
- Exposure to both U.S. and international markets.
- Avoid putting all your money in a single stock or sector.
7. Keep Learning and Stay Patient
Investing is a long game.
- Don’t get caught up in hype around meme stocks, day trading, or “get-rich-quick” schemes.
- Stick to proven strategies like low-cost, diversified funds and consistent contributions.
- Read investing books, follow credible financial educators, and continuously grow your money mindset.
8. Bonus Tip: Invest in Yourself Too
Your 20s are also the perfect time to:
- Learn new skills that can increase your earning potential.
- Pursue education or certifications that advance your career.
- Build side hustles that generate extra income you can invest.
Remember—higher income gives you more fuel to invest, and personal growth often provides the best returns of all.
The best way to start investing in your 20s is to start early, stay consistent, and keep it simple. Maximize retirement accounts, embrace index funds, and automate your contributions. Even small amounts—like $100 a month—can snowball into six or seven figures over several decades thanks to compound interest.
The most important step isn’t waiting for the “perfect” investment or timing the market—it’s taking action now. Your future self will thank you.