How to Invest if You Are 20 Years Old

by Sam Ashe-Edmunds ; Updated April 19, 2017
Think long-term when investing at a young age.

A 20-year-old investor has different needs from a Baby Boomer facing retirement, so his portfolio can take on a completely different formulation than the older investor. Depending on your reasons for investing, you’ll want to consider how liquid you need to be, how conservative or aggressive your strategy will be and how to protect yourself from taxes.

Consider Your Goals

The first step in investing is to determine your financial goals. If you are saving for retirement only, you will be leaving your money in your portfolio for the long-term and will choose investments that keep growing and minimize your taxes. If you will be using that money to pay off student loans in two years or help pay for a graduate degree, you will require greater liquidity and may want to be more conservative in your strategy.

Determine Your Needs

Look years ahead and determine how much money you will need to meet your goals. For example, if you will be using your money in two or three years to pay for all or part of your education, calculate how much money you’ll need at that time. If you are saving for retirement, use an online retirement calculator to determine how much money you’ll need to have saved by your desired retirement year. This will help you determine how much money you’ll need to add to your portfolio each year. If you plan to use your money to start a business after college, look at how much you’ll need for start-up and initial operating expenses.

Balance Your Portfolio

Once you know when you will need your money and how much, you can create a portfolio that meets your needs. If you are investing long-term, you can be more aggressive, weighing your portfolio with more speculative securities or mutual funds. A mutual fund is a group of securities managed by a professional investment manager. If you will need your money soon and can’t afford to lose much or any of your funds, stay away from high-risk stocks and choose more conservative financial instruments, such as bonds.

If you work at a company that offers a 401(k) match, take advantage of that opportunity to double your money, even if the company plan is less aggressive than your personal investment strategy. Add $5,000 annually to a Roth IRA to take advantage of tax-free investing if you are saving for retirement. Look at life insurance policies that give you a return on your investment. Some have lower premiums that pay survivors, while others mature and pay you interest.

Manage Your Investments

Keep track of your investments to see how they are performing. Study the market to determine if there are any trends you can spot to help you invest. For example, if the economy is on the upswing, gold and bonds may move down, while oil and stocks may rise. The opposite will be true during an economic downturn. If you are earning money from your investments, including dividends, reinvest them to avoid higher taxes. Discuss tax strategies with a financial adviser or your tax accountant to make sure you are taking advantage of strategies that minimize your tax burden.

Day Trade

Consider opening an online trading account and using a small amount of your money to speculate in individual stocks and other securities. You may lose some of your money, but you will learn invaluable lessons about patience, risk-taking, stop-losses and other aspects of investing.

About the Author

Sam Ashe-Edmunds has been writing and lecturing for decades. He has worked in the corporate and nonprofit arenas as a C-Suite executive, serving on several nonprofit boards. He is an internationally traveled sport science writer and lecturer. He has been published in print publications such as Entrepreneur, Tennis, SI for Kids, Chicago Tribune, Sacramento Bee, and on websites such, SmartyCents and Youthletic. Edmunds has a bachelor's degree in journalism.

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