What everyone in their 20s need to know about investing

And no, you’re not too young to start!

Once you hit your 20s, you think you need to have your life figured out. 

Between focusing on your career and spending time with your friends, investing may not be a huge priority. Right now you may not even know what your investing goals are. 

But the good news is: the 20’s is the new teens! Your 20’s is all about exploring and figuring your life out – this time with more cash at hand ? 

So if you’re in your 20s wondering what to do with investing, scroll on!

In this article:

  1. Pull out your spreadsheet besties, we’re budgeting before investing
  2. One of the basics of investing – organize your finances
  3. Make use of your EPF as part of your investment plan
  4. Start investing small and keep going
  5. Risk is your new BFF in investment

1. Pull out your spreadsheet besties, we’re budgeting before investing

Just because you have the money, that doesn’t mean you should spend it in one go!

We all have our own commitments and the older we get, the longer the list gets. A budget isn’t meant to be “how much I can squeeze my spending and save”; it’s to help you understand how much you can spend comfortably and your spending habits.

You still have to save though! Keep at least 20% of your pay aside. Choose what you would like to do with it: including investing it! 

2. One of the basics of investing – organize your finances

Your 20s is a good time to figure out what you want to do with your life and how your money can help you achieve that. 

You don’t need the big picture. You can start with general goals such as a house, pursuing a master’s/phD, or even moving overseas. 

So organize your finances and goals so they can align. Here’s how:

1. Pay-me-first cash

Paying yourself first means paying whatever that’s keeping you alive and safe now. Example: Bills, rent, car payments, your insurance. These are your biggest priorities. Set the money aside somewhere accessible, like a savings account.

2. Emergency cash

It;s the same ol’ advice.

You need one because it’s a big no-no that during emergencies you: (a.) dip into your investment fund while it’s yielding returns OR (b.) into your pay-me-first fund that’s specifically allocated for current essentials.

Keep it separately in an accessible account that rewards you with higher interest that you can access via digital wealth apps such as Versa.  

>>> How much cash should you put in your emergency fund?

3. Medium-term cash

Here’s where we talk about longer term goals, say 3-7 years. Marriage, a house, a really expensive pet?

Don’t just save; grow your fund! As these goals are nearer, you may prefer some stability. To grow your savings with lower risk, you can place your savings either in a high-yield savings account, money market fund, or fixed deposit. 

>> Learn the pros and cons of a high-yield savings account & fixed deposit

4. Long-term cash

Do you have any long-term goals that may take up 10 – 20 years? Then this is the best time to focus on building and managing your wealth towards that goal! 

The more time you have, the higher risk you can take to potentially earn higher returns. Our suggestion? Take your chances with riskier investments to reach your goals. 

>> Learn how to identify your risk appetite through your time horizon and goals

3. Make use of your EPF as part of your investment plan

And we don’t mean withdrawing RM10k when they let you!

See it as a basic form of investment. Your retirement may feel like a long way but the sooner you build your retirement fund, the better.

Your employers that offer this benefit often match contributions up to a certain percentage of your salary. If you can afford to, choose to contribute a higher percentage.

4. Start investing small and keep going

If you’ve been anywhere near r/wallstreetbets or investing gurus, it feels like the options are endless and you need to do everything everywhere all at once.

Take a breather and start at your own pace.

One good way to start is by using wealth management apps to invest in index funds or exchange-traded funds. This can be done through robo-advisors or by fund managers such as in Versa Invest that allows you to access premium funds handled by globally renowned fund managers. As Versa allows you to save AND invest on one app, you can manage your wealth flexibly by switching funds seamlessly between different portfolios and Versa Cash.

5. When it comes to investments, Risk is your new BFF

Once you start investing, remember: the more time you have, the higher risk you can take. Higher risk = More potential rewards. 

And you’re in your 20s! Plenty of time to go around. That doesn’t mean you should opt for reckless investing decisions or highly volatile ones like crypto.

We’re talking equities, bonds. The market often undergoes fluctuations. If you’re investing for short to medium term goals, your investments will not have enough time to recover from the short-term losses. 

One reason why investing in your 20s is so important is that you’re looking at a very long investment horizon, which allows you to capitalize on all that growth. By starting now, you’ve earned a head start to wealth management.