Investing at an early age gives your money time to grow. It also helps to reduce the need to borrow money and become someone else’s debtor, as your investments will provide funds for any unforeseen expenses.
There will be periods of ups and downs with any investment, but investors in their 20s are better equipped to handle this risk than older adults.
High-Yield Savings Accounts
As a young adult, it’s important to start investing as early as possible. While there are many different investment options, high-yield savings accounts offer some of the highest returns on your money. They also provide a safe place to store your funds, as they’re FDIC-protected.
High-yield savings accounts offer higher interest rates than traditional savings accounts, and some even pay compound interest. This means that the interest you earn on your money is reinvested into itself, which allows it to grow much faster. In addition, these accounts typically have low or no fees. In order to find the best one for you, it’s important to compare rates and choose the account that offers the most interest on your deposit.
Some high-yield savings accounts are offered by online banks, while others are part of a brick-and-mortar bank. Make sure to check the bank’s website to ensure that you are getting a true high-yield savings account. Additionally, some banks may limit how many times you can withdraw or transfer funds per month. However, most online banks allow you to access your money six or more times each month.
You should also keep in mind that high-yield savings accounts may not be able to keep up with inflation. This is why it’s important to diversify your investments, so you’re not putting all of your eggs in one basket.
Another type of investment that can provide a good return on your money is a certificate of deposit, or CD. These are a great option for young adults because they allow them to lock their funds away for a set amount of time. Then, at the end of that period, they can receive what they were expecting from their investment.
Finally, one of the most popular physical investments for young adults is real estate. This can be a great way to build wealth, but it’s important to consider the costs and risks involved before making a decision. In addition, it’s essential to have a plan in place to manage your risk and ensure that you are buying a property that will be profitable.
Certificates of Deposit (CDs)
If you’re looking to invest but don’t have a lot of money, you can open a certificate of deposit (CD). These accounts pay higher interest rates than savings accounts and are insured by the federal government. They’re also available from many banks and credit unions.
They are a great investment option for people who prefer stability to the potentially higher returns of riskier investments like stocks and bonds. However, there are some disadvantages to investing in CDs. For one, they aren’t as liquid as savings accounts. They typically require a minimum initial deposit and lock your funds away for a certain period of time, called the term. If you withdraw the funds before the term expires, you’ll likely be hit with a penalty fee.
Another problem is that you can’t write checks on the funds in a CD. This makes them slightly illiquid, and it’s important to consider whether you can realistically keep your funds in the account for its entire duration. You can, however, choose a longer-term CD to earn higher rates.
One of the best things you can do as a young adult is to diversify your financial assets. This means putting some of your money into retirement accounts, paying down debt, and buying physical assets such as real estate and mutual funds. This diversification can help you achieve your financial goals, even in difficult times.
For example, while stocks are often considered a risky investment, they’re also a good place to put your money if you want to grow it without the risks of other investments. As a young adult, you can take advantage of low prices for top stocks and enjoy a long-term return on your investment.
Another smart way to invest is to use robo-advisors, which are online services that manage your investments on your behalf. Robo-advisors offer a range of services for investors, including digital checking accounts and lines of credit that fit your lifestyle. These services are ideal for young adults because they provide a safe, easy way to invest your money. Moreover, they are often less expensive than traditional brokerage accounts and do not require you to hire a broker.
Brokerage Accounts for Teens
A brokerage account is the next step up from a savings account, especially for teens. It’s the best investment in young age because it allows you to diversify your portfolio, which protects your money from a single event or market decline. However, it’s a good idea to talk to an advisor before opening one. They can help you choose the right investment for your particular situation.
You can use online investment apps to open brokerage accounts. These apps allow you to invest a small amount of money with no fee and can track your investments for you. They also make it easy to switch from one investment to another. Some of the most popular investment apps include Robinhood, Webull, and Acorns. These apps allow you to invest spare change automatically through Round-ups, and some have a new Premium tier that offers perks like live Q&As with financial experts and a 50% match on your Acorns Earn rewards.
Some brokers have accounts that are specifically designed for teens. These accounts let kids have ownership of the account while allowing parents to monitor their activity. For example, Fidelity has an investment account called the Youth Account that is available for teens between 13 and 17 years old. It lets teens trade most U.S. stocks, ETFs, and Fidelity mutual funds. And it offers fractional shares, making it easier for teenagers with limited money to invest.
The Youth Account also has a prepaid debit card with no domestic ATM fees and can be linked to mobile payment apps like Venmo or PayPal. And it has a dedicated Youth Learning Center that can help jumpstart teens’ financial learning and build better money habits. Parents can follow their teen’s account activity through online access, monthly statements, and trade confirmations.
Whether or not a brokerage account is the right choice for your teen depends on a number of factors, including their risk tolerance, time horizon, and desired rate of return. The key is to encourage them to start saving regularly and then teach them how to invest with a variety of different assets. By taking a hands-off approach to investing and dollar-cost averaging into diversified index funds, they can take advantage of the power of compound interest over time.
A mutual fund is an investment vehicle that provides access to a diversified pool of investments, such as stocks or bonds. In exchange for a cash investment, investors receive shares of the fund, which enable them to participate in the financial performance of the fund. Depending on the investment style, a fund may also invest in other assets, such as real estate or currencies.
Investing in mutual funds is a great way to get started with investing, especially for young adults. Compared to other options, these investments tend to have lower fees and offer a wide range of options. They are also liquid and easy to buy and sell. However, before you make a decision to invest in mutual funds, it’s important to understand what they are and how they work.
The best investments for teens and young adults are ones that will help them build long-term wealth and value. They can do this by paying down debt, purchasing property, and investing in tax-advantaged accounts. While the stock market can be volatile at times, it can also provide a high return on investment when you invest for the long-term.
One of the best investment options for young adults is a retirement account, such as a 401(k) or individual retirement account (IRA). These accounts are designed to let you save money for retirement in a tax-efficient manner. Moreover, the money you put in these accounts grows tax-free thanks to compound interest. Additionally, there are a number of benefits to starting early in the retirement process, including access to employer matching contributions and pre-tax salary deferrals.
When it comes to choosing a retirement account, young adults should consider factors such as their employment status and expected future income. Additionally, they should also look at their financial goals and risk tolerance. Lastly, they should make sure they are making use of any student loan repayment programs or Public Service Loan Forgiveness benefits.
Young adults should also be sure they have a fully funded emergency savings account, which can cover at least three to six months of expenses. This should be held in a high-yield savings account or money market account. In addition to an emergency savings account, young adults should focus on a long-term investment strategy that includes debt elimination, property ownership, and investing in mutual funds and index funds.