Investing in Your 20s: Why it’s the best gift for yourself and how to start

One of the biggest myths about investing is that you need a lot of money to start. This is why people, especially young adults, tend to put it off until they feel like they have more disposable income. What people don’t know is that by putting it off, they rob themselves of one of the greatest advantages: time.

As daunting as “investing while you’re young” sounds, the amazing part about it is that you can actually start now with just PHP 1,000. In this article, you will learn why it is important to invest at an early age, how to get started, and what it can do for your financial future.

The Importance of Investing Early

Investing is a waiting game. Here are reasons why investing in your 20s can be a great financial decision:

 

You have more time to see your money grow

Investing in your 20s allows you to take full advantage of the power of compounding. Compounding refers to the ability of an investment to generate earnings, and then those earnings generate their own earnings over time.

Let’s say you have PHP 10,000 that you decide to invest in a Unit Investment Trust Fund (UITF) with a three-year performance of +3.5%. At the end of the first year, you will earn PHP350 in interest (3.5% of PHP 10,000), bringing the total amount to PHP 10,350. And then at the end of the fifth year, assuming the UITF performance stays at the same rate, your PHP 10,000 investment will have grown to PHP 11,857.29.

By starting early, your investments have more time to grow, and the small amounts you put in now can turn into substantial sums over several decades.

 

You get to learn “on the job” while you can still afford it

Investing in your 20s allows you to gain valuable experience and learn from your investment decisions. You can start to understand the intricacies of the financial markets, various investment vehicles, and different investment strategies. This knowledge can be crucial in developing your financial literacy and making informed decisions in the future.

Investing early provides you with flexibility and the ability to recover from potential setbacks. If you experience temporary losses or market downturns, you have more time to recover and adjust your investment strategy.

 

You learn to build good financial habits

Investing early encourages you to develop disciplined saving and investing habits. Regularly setting aside a portion of your income for investments can instill a sense of financial responsibility and discipline. These habits can set the foundation for a healthy financial future, enabling you to meet your long-term goals and objectives.

With good financial habits, you’ll also be in a better position to afford further education and leverage that to command a higher salary or develop other ways of earning income.

 

You get more opportunities to diversify your investment portfolio

Starting to invest early allows you to build a diversified portfolio over time. This means investing across different asset classes industries, and even geographic regions. Diversification helps reduce risk, because you don’t just put all your eggs in one basket, potentially minimizing the impact of any individual investment’s performance and increasing the likelihood of good returns in the long term.

As you learn more about personal finance, you’ll understand that it’s always best to put more eggs in more baskets.

 

You get more time to prepare for your retirement

Okay, you just started working, should you be thinking about retiring? Yes, that’s the ultimate goal, isn’t it? To eventually have the time and funds to freely live out the rest of your life.

By taking advantage of tax-advantaged retirement accounts like Personal Equity and Retirement Accounts (PERA), you can benefit from potential tax savings 1and compound growth over several decades. This early start can greatly contribute to your retirement nest egg — if you do it well, you can even retire earlier than your peers.

How to start investing in early 20s

Not sure where to start? Here are tips to help you get started:

 

Start with a plan

Identify your investment goals and how much risk you’re willing to tolerate. You may have short-term, buying a house in five years, and long-term goals, such as retiring at 60, which will require different strategies. Identifying your goals will help you decide what to invest in in your early 20s.

 

Start small and diversify

You may not have as much funds for investment yet in your 20s, but you can still invest in simple investments like mutual funds, bonds, and UITFs. Invest in different products to help reduce risk.

 

Seek help

Consider hiring a financial advisor if you’re not sure how to choose or manage your investments.

 

Continue Saving

Don’t put all your money into investments. Continue building up your emergency and/or life savings as you invest.

Are you ready to invest?

Getting an early start in investing can have a profound impact on your financial future. Your investments can supplement your income as they grow and help set you up for early retirement. Learn more about how you can start investing in your 20s — with just PHP 1,000! — on Earnest, and set yourself on a path towards building wealth, achieving financial goals, and securing a brighter future.