Investing In Your 20s: How To Get Started

Investing as a young adult is one of the most important things you can do to prepare for your future.

You might think you need a lot of money to start investing. After all, the average Gen Zer said they’d need to earn $200,000 a year to feel financially comfortable, according to a Bankrate survey. However, it’s easier than ever to start investing with small amounts of money.

Once you set up your investment accounts, you’ll be well on your way to saving for goals like retirement, purchasing a home or even future travel plans.

Getting a head start on investing can really pay off, too. Money invested in your 20s can compound for decades, making it a great time to invest for long-term goals.

What makes your 20s the ideal time to get into investing?

For starters, you’re young. The younger you are, the more time your money has to grow thanks to a process called compounding. Compounding is the process of earning returns on both your initial investment and the earnings you receive over time. If your $1,000 earns 10 percent one year, the next year you have $1,100 earning another 10 percent, for example.

One way to think about compound interest is like a snowball rolling down a hill. Over time, the snowball grows larger because it’s collecting more snow as it rolls. The farther the snowball rolls, the more snow it picks up. Your money does the same thing. That is, if you give it enough time to grow. 

With more time until retirement comes the ability to take more risks and potentially be more aggressive with your investment strategy. For example, you may consider investing in high-growth stocks as opposed to something safer, like bonds, because you have time to make up for any losses. Starting earlier can exponentially grow your retirement nest egg or savings if you start early enough. 

When you’re in your 20s, you have time to learn and grow financially to create good habits that will pay off and help you achieve your long-term goals. 

How to start investing in your 20s

More than half (57 percent) of American workers feel behind on their retirement savings, according to Bankrate’s Retirement Savings Survey. This statistic underscores the importance of investing in your 20s when you can invest less and reap high rewards because your money has more time to grow.

If you’ve never invested, you can get started in less than 30 minutes. But before you dive headfirst into the market, it’s important to prioritize paying off any high-interest debt that might be straining your finances and then build up an emergency fund with savings that could meet at least three to six months of expenses.

Once that is handled you can get a jump on investing, even if you’re starting small. Developing a consistent approach to saving and investing will help you stick to your plan over time.

Here are some tips on how to get started.

1. Determine your investment goals

Before you jump in, you’ll want to think about the goals you’re trying to achieve by investing.

“It’s ultimately looking at all the experiences you want to have over your lifetime and then prioritizing those things,” says Claire Gallant, a certified financial planner and co-founder of Vivify. “For some people, maybe they want to travel every single year or they want to purchase a car in two years and they also want to retire at 65. It’s crafting the investment plan to make sure that those things are possible.”

The accounts you use for short-term goals, like travel, will differ from those you open for long-term retirement goals.

You’ll also want to understand your own tolerance for risk, which involves thinking about how you’ll react if an investment performs poorly. Your 20s can be a great time to take on investment risk because you have a long time to make up for losses. Focusing on riskier assets, such as stocks, for long-term goals will likely make a lot of sense when you’re in a position to start early.

Once you’ve outlined a set of goals and established a plan, you’re ready to look into specific accounts.

2. Contribute to an employer-sponsored retirement plan

Saving money for retirement in your 20s might feel like a low priority. After all, you just started working and retirement is still decades away. But again, 20-somethings who begin investing through an employer-sponsored tax-advantaged retirement plan can benefit from decades of compounding. Most often, that plan comes in the form of a 401(k).

A 401(k) allows you to invest money on a pre-tax basis (up to $23,500 in 2025 for those under age 50) that grows tax-deferred until it’s withdrawn in retirement. Some employers also offer a Roth 401(k) option, which allows employees to make after-tax contributions that grow tax-free, and you’ll pay no taxes when taking withdrawals during retirement.

Many companies also match employees’ contributions up to a certain percentage.

“You always want to contribute enough to at least get that match, because otherwise you’re just walking away from more-or-less free money,” Gallant says.

But the match might come with a vesting schedule, which means you’ll have to stay at your job for a certain amount of time before you’ll receive the full amount. Some employers allow you to keep 20 percent of the match after one year of employment, with that number steadily increasing until you receive 100 percent after five years.

Even if you can’t max out your 401(k) right away, starting small can make a huge difference over time. Develop a plan to increase contributions as your career progresses and income climbs higher.

Bankrate’s 401(k) calculator can help you figure out how much to contribute to your 401(k) in order to build up enough money for retirement.

3. Open an individual retirement account (IRA)

The truth is not everyone has access to a 401(k) plan at work. In fact, about 28 percent of private industry workers lacked access to an employer-provided retirement plan in March 2024, according to the U.S. Bureau of Labor Statistics.

Another way to continue your long-term investment strategy — without the help of your employer — is with an individual retirement account, or IRA.

There are two main IRA options: traditional and Roth. Contributions to a traditional IRA are similar to a 401(k) in that they go in on a pre-tax basis and are not taxed until withdrawal. Roth IRA contributions, on the other hand, go into the account after-tax, and qualified distributions may be withdrawn tax-free.

Investors younger than age 50 are allowed to contribute up to $7,000 in 2025.

Experts generally recommend a Roth IRA over a traditional IRA for 20-somethings because they’re more likely to be in a lower tax bracket than they will be at retirement age.

“We always love the Roth option,” Gallant says. “As young people make more and more money, their tax bracket is going to increase. They’re paying into those funds at that lowest tax rate today, so that when they retire they can take that money out without tax.”

Ross Menke, a certified financial planner at Mariner Wealth Advisors in Sioux Falls, South Dakota, advises investors of any age to consider their personal situation before making a decision.

“It’s all dependent on when you want to pay the tax and when it’s most appropriate for you based on your personal circumstances,” he says.

4. Find a broker or robo-advisor that meets your needs

For longer-term goals that aren’t necessarily retirement-related, like a down payment on a future home or your child’s education expenses, brokerage accounts are a great option.

And with the advent of online brokers such as Fidelity and Schwab, as well as robo-advisors like Betterment and Wealthfront, they’re more accessible than ever for young people who may be starting out with little money.

These companies offer low fees, reasonable minimums and educational resources for new investors, and your investments can often be made easily through an app on your phone. Wealthfront, for example, charges just 0.25 percent of your assets each year with a $500 minimum balance to get started.

Many robo-advisors simplify the process as much as possible. Provide a bit of information about your goals and time horizon and the robo-advisor will choose a portfolio that matches up well and periodically rebalances it for you. Using a robo-advisor is so simple, it made Bankrate’s list of easy ways to start investing as a college student.

“There’s a lot of good options out there and each of them have their own specialty,” Menke says. Shop around to find the one that best fits your time horizon and contribution level.

5. Consider leveraging a financial advisor

If you don’t want to go the robo-advisor route, a financial advisor can also be a great resource for beginning investors.

While an advisor is the more expensive option, they’ll work with you to establish goals, assess risk tolerance and find the brokerage accounts that best fit your needs. They can help you choose where to direct the funds in your retirement accounts as well.

A financial advisor will also use their expertise to steer you in the right investment direction. While it’s easy for some young investors to get caught up in the excitement of daily market highs and lows, a financial advisor understands how the long game works.

“I don’t believe investing should be exciting, I think it should be boring,” Menke says. “It shouldn’t be seen as a form of entertainment because it is your life savings. Boring is OK sometimes. It’s coming back to what your time frame is and what your goal is.”

6. Keep short-term savings somewhere easily accessible

Like your emergency fund, which you may need to access at a moment’s notice, store your short-term investments somewhere easily accessible and not subject to market fluctuations.

While they won’t earn as much as money as equities, high-yield savings accounts, CDs and money market accounts are great options.

“If you need the money available in a couple years, then it shouldn’t be invested in the stock market,” Menke says. “It should be invested in those more secure vehicles like a CD or money market where, yes, you might be giving up some potential growth, but it’s more important to have the return of your money instead of a return on your money.”

7. Increase your savings over time

Establishing a savings amount that you can stick to and having a plan to increase that over time is one of the best things you can do in your 20s.

“Committing to a specific savings rate and continuing to increase that year after year is what’s going to have the biggest impact early in your savings career to get you started,” according to Menke.

Consider automating your savings so that a portion of your paycheck is automatically transferred to your savings account each time you get paid. Transfer those funds to a high-yield savings account to give your money an extra boost.

By learning how to save money in your 20s, you’ll make it easier on yourself as you get older and won’t have to worry about taking extreme savings measures later to meet your long-term financial goals.

Investment options for beginners

• ETFs and mutual funds. These funds allow investors to purchase a basket of securities at a fairly low cost. Funds that track indexes such as the S&P 500 are popular with investors because they easily provide broad diversification for fees that are close to zero. ETFs trade throughout the day like a stock does, while mutual funds can only be purchased at the day’s closing net asset value (NAV).
• Stocks. For your long-term goals, stocks are considered one of the best investment options. You can buy stocks through ETFs or mutual funds, but you can also pick individual companies to invest in. You’ll want to thoroughly research any stock before investing and be sure to diversify your holdings. It’s best to start small if you don’t have much experience.
• Fixed income. If you’re a more risk-averse investor, fixed-income investments such as bonds, money-market funds or high-yield savings accounts can allow you to ease your way into the investment landscape. Fixed-income securities are generally less risky than stocks, though you’ll also earn lower returns. These investments can still end up losing value, however, thanks to rising interest rates or elevated inflation.

Diversification is key

One way to limit your risk in investing is to make sure your portfolio is adequately diversified. This involves making sure you don’t have too many eggs in one or similar baskets. By maintaining diversification, you’ll be able to smooth out your investing journey and hopefully make it more likely that you can stick to your plan.

Remember that investments in stocks should always be made with long-term money, which allows you to have a time horizon of at least three to five years. Money that could have a short-term use is better invested in high-yield savings accounts or other cash management accounts.

Why financial literacy is crucial for young investors

Financial literacy is crucial for young investors because financial decisions — both good and bad — have decades to compound. 

Well-informed choices early on, such as investing money from your high school job or your first job out of college into an IRA or 401(k), means you could potentially have more money in retirement, while saving less. Every dollar invested in your 20s has more earning potential than a dollar invested in your 60s. 

Understanding how to build good credit, for example, could mean lower interest rates when you buy a car. Racking up account fees, not saving for emergencies or making risky investments without understanding the risk could cost you and keep costing you as you try to get back on track. 

Building a foundation of financial literacy in your 20s can help you reach your goals in the future, whether that’s having children, buying a home, changing careers or retiring early. 

Bottom line 

Begin your investment journey by thinking through your short-term, intermediate and long-term goals, and then find the accounts that best fit those needs. Your plans will likely change over time, but getting started with at least a retirement account is one of the most important things you can do for yourself in your 20s. Not only will you ensure your money keeps up with inflation, but you’ll also reap the benefits of decades’ worth of compound interest on your contributions.

— Bankrate’s Logan Jacoby contributed to an update.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.