The 20s can be one of the most challenging periods in the life of a human being. The transition from being a teenager and becoming an adult brings new responsibilities for a person, especially regarding their money. Young adults have to balance their finance in order to reach their future achievements, but at the same time they have to spend their money with different expenses. For example, according to the research made by the Education Data Organization, one-third of American adults under 30 years old owe 34% of all student loan debt. Economists and financial analysts noticed young adults often struggle handling the balance between managing expenses and investing their money. So, they started to provide financial tips for this new generation in order to help them to invest their money correctly.
According to these professionals, there are many ways people in their 20s can invest their money. But before starting any investment, it is important to set up the achievement to be reached. For example, some youngster want to invest their money to have a solid retirement. Others, might have buying a house or studying abroad as their main goal.
But, since there are many ways, what are the best methods to invest your money in your 20s? According to many professionals, the best investment techniques are:
- Invest in stocks
- Invest in bonds
- Invest in funds
Stock Investment
Stock investments appear as the first topic in the list of many financial professionals. According to a research from the Pew Research Center in 2016, 52% of the American families invest their money in the stock market. This kind of asset allows a person to own a part of a corporation. For example, if a company has 500,000 shares, a person can buy 20,000 shares and become one of the investors of this organization.
Economists believe stocks are a good investment for the young generation because they protect the money invested and maximize their income. It is also important because it helps the young adult to build a good savings account in order to have a solid financial status in the future.
Despite the advantages mentioned above, investing in stocks can be dangerous if the move is not well studied before it is done. Investors can lose part of their asset if the company invested does not perform as expected and its market value decreases.
Bond Investment
The second kind of investment presented in different economists list is the bond investment. “A bond is a fixed-income instrument that represents a loan made by an investor to a borrower,” explained Jason Fernando, professional investor.
The bond investment can provide a good return for the investor and it is considered by many specialists safer than the stock investment. This occurs because bonds represent debts and investing in debts is considered the safest way to invest. So, this asset might be the perfect choice for a youngster who is just entering the financial market.
Just like any other, a bond investment can be risky for an investor. The lender can face problems regarding interest rate, inflation and liquidity. These three factors can decrease the bond’s value, reduce the purchasing power from an investor, and make it difficult to negotiate the loan.
Fund Investment
The third and last investment in this list is the investment fund. An investment fund belongs to different investors and they are able to control their own part of the share. This is an asset which its principal characteristic is the different types of funds for investors such as mutual funds, hedge funds and exchange traded funds.
As the other two listed above, the fund investment has many benefits and also drawbacks for investors, such as the high cost of the fees. But one of the most important aspects of this investment does not relate to the money itself, but to the ability of managing finances.
When having a fund investment, young adults must learn how to manage their own part of their share in order to obtain better results. So, this kind of asset can be a good choice for youngsters seeking to be more cautious with their money and willing to learn more about the financial world.
Don’t Forget to Set Up a Plan Before The Investment
As mentioned throughout the text, it is extremely important to set up a goal before making any investment. An investment is a long-term activity and a good profit can be essential for people in their 20s planning their future.
“Once you have the financial plan in place, consider your desired asset allocation based on your risk profile and the goal horizon,” said Sunil Dhawan, economy journalist.
So, before making your first move towards the financial world, it is important to:
- Set up the goal to be achieved.
- Prepare an investment strategy.
- Read about the investment you prepare to make.
- Make sure your budget aligns with the investment you prepare to make.
With the facility of having a wide access to information, youngsters have many tools available to reach their economic independency and a solid bank account in the future. Making the right investment can allow Z generation members to have a happy retirement, or to buy the house of their dreams.
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