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Tips for investing in your 20s

Whether you’re in your 20s now, or know of someone who could benefit from a financial kick start, here are some useful tips to get started.


If you haven’t read our article ‘Keeping up appearances is holding Australians back’ – it’s well worth the read. But, to sum it up, it’s about how younger Australians feel the need to live a certain lifestyle and it’s costing them big in the long term.

Throw the rising cost of living in the mix, and the wealth of young Australians isn’t keeping up with inflation. With home ownership rates falling amongst the younger generations, many younger Australians feel that the "Aussie dream" of owning a home is slipping out of reach.

Home ownership isn't the only way for millennials to start building up their financial position. The most important thing is to start early and make it regular - even if it is only in a small way.

Whether you’re in your 20s now, or know of someone who could benefit from a financial kick start, here are some useful tips to get started.

Start as soon as you can

The sooner someone starts, the sooner they could reach their financial goals. It also means you can take advantage of compounding growth from a younger age.

What’s so important about compound growth? The earlier investing starts, the longer the money is put to work. Once a profit is earned on the investments, these profits can be used to reinvest, potentially earning a profit on the initial profit.

ASIC’s MoneySmart1 puts it best, “Compound interest is like double chocolate topping for your savings.”

Let’s put it into perspective. Say the initial deposit is $5,000 and then an additional $50 a week is added every week without skipping. If interest was compounded monthly at a return of 5%, after 10 years there would be $41,880 sitting in the account – that’s pretty impressive.

Compare this to just saving the initial $5,000 and the additional $50 weekly installments would equal $31,000 over 10 years without earning any interest. That’s a difference of over $11,000.

Now let’s say this journey starts at age 25 and it continues for 40 years. By the time you celebrate your 65th birthday, there could potentially be $367,430 sitting there – now that’s very impressive considering the amount you’ve put into the account equals $109,000 (which is what you would have if you didn’t earn any interest) over the years and the profits from compound growth in this scenario contributed $285,430.

Benefit from regularity

Not only can compounding work wonders over time, but regularly contributing to investments can give wealth a nice boost.

Starting to invest in any form is usually a great move, but planning to add a regular amount can help to deliver significantly better results for your financial plan.

It’s a good idea to set this money aside as soon as you get paid. Using the strategy of “I’ll invest anything I have left at the end of this pay cycle” may mean you can’t stick to your commitment if there’s not much left over in some months.

Think more is better

There are different ways to invest which ultimately come down to how comfortable you are with the fact that some assets could move dramatically from week to week (think share markets) whilst others are more stable. 

Your comfort levels with the volatility (or ups and downs) of investment markets will determine the right investment strategy for you.

Diversifying investments means spreading your money over a wider group of investments, and it’s just a fancy way of saying “Don’t put all your eggs in one basket.” It’s an important part of the strategy to help protect your investment portfolio from some of the risks involved in investing.

Rather than just choosing a few stocks, investing in managed funds or exchange traded funds (ETFs) might be another way to help spread the risk by investing across numerous companies and industries.

In this strategy, if one of the markets doesn’t perform well, there are other investments in other markets that might be doing better, which can help balance out any losses in one part of your investment portfolio.

A few things to keep in mind

Whether you’re thinking of beginning an investment journey, or think it could benefit your children, family or friends - there’s a few things that you should keep in mind.

Time is everything

First and foremost, it’s worthwhile either paying off any high interest debt or at least have them under control. Then it’s also worth considering setting up an emergency savings fund.

Balancing out where to allocate your money if you need to pay off debt or save for an emergency fund is important - it could also mean there could be less money to start investing early. We already know time is an important factor when it comes to investing as it’s a long term strategy – the money that is invested for longer usually generates better returns. As your financial adviser, we can help you develop a plan to balance out all these competing needs.

Protect your wealth

Sometimes the thrill of building wealth can mean that protecting your wealth becomes an afterthought. If your wealth protection plan (which might include insurance, financial agreements, trusts and binding death nominations) are not set up properly, you could potentially lose your assets if something happens and you can no longer earn an income, or those assets could end up going to the wrong person if something happens to you.

A starting point for protecting your wealth is to speak to your local Mortgage Choice Financial Adviser.

There’s more than just investing

Investing is a great strategy to boost wealth, however, it isn’t the be all and end all. Ensuring that spending is under control can go a long way to stick to an investment plan as well as manage money outside of it. 

Consider all aspects of money management and implement investing as part of an overall strategy.

Remember, you don’t need to start investing alone. A Mortgage Choice Financial Adviser can help you through this journey. An expert can help determine your level of risk and tailor a strategy that suits you, no matter what stage of life you’re in.

Best part is, you don’t need to feel overwhelmed when you first start when you have an expert on your side.

Your local Mortgage Choice adviser


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Posted in: Financial planning

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