For most individuals, the mid-20s is the first time span during which we gain admittance to a sensible measure of extra cash. It may not be easy to know how to invest in your 20s. Up to that point, it is not unexpected to have depended either on lower-paying positions or guardians. We know, nonetheless, that as fast as the cash comes in, so too does it go out on things like new computer games, costly food, film tickets and so on.
In this article, I’ll show you how to think differently about how you can use money. I’ll show that money doesn’t have to be spent, but rather it can be invested to make you more money. Let’s dive into the first tip.
1. Create More Income
You can generate income through a variety of strategies, each of which takes different levels of work. For example, you can invest your time and money into starting a business.
If you’re not sure how to get started, you can begin by asking yourself what skills you have and how you could potentially turn these skills into a product or service you can sell. You might love to cook and in your free time decide to post 10-60 second TikTok videos or even write and sell a recipe eBook.
You may even team up with someone who has skills that complement yours. For example, in our ebook scenario, you might take responsibility for the curation of recipes whilst your friend who understands marketing can help spread awareness.
You can consider doing these projects for free at the start to gain experience before you begin charging.
2. Save Money and Invest Today
This is where the concept of living below your means comes into play. This doesn’t mean to be stingy, but rather spend money in a way whereby your net worth is continually increasing. When you bring compound interest into play, the amount of money you’re giving up by making a big purchase in your 20s is enormous.
3. Take Calculated Positive EV Risk
One of the benefits of being in your 20s is that you likely don’t have a lot of responsibilities like a house or family and you have a long time horizon, meaning you can afford to take on larger calculated risks. Investing is a large topic and everyone has to start somewhere. I’ll highly recommend considering Nassim Taleb’s Barbell Strategy.
This strategy suggests that the best way to strike a balance between risk and reward is to invest in the two extremes of high risk and no risk assets while avoiding middle-of-the-road choices.
A real-life barbell has weights on each end and a bar in the middle to connect them.
With an investing barbell, on one side you have a small proportion of investments that are high risk but have high reward potential. The reason for these is to be exposed to the occasional unlimited upside. In fact, the younger you are, the more heavily weighted you can be to this side of the barbell.
On the other side, you have a larger proportion of low-risk and low reward potential investments. The reason for these is to protect yourself from the risk of ruin.
No investments are held in the middle, or other words, nothing medium risk is held in the portfolio.
👉 For more detail on the barbell strategy, click Taleb’s Barbell Strategy.
What many don’t consider in their early 20s, however, is their ability to take the non-financial risk. For example, one of the most controversial topics is that of the university. There are other options if you’re unsure as to whether you want to attend university. You can always take a year to two years off to figure out what you want out of life. This is a much better plan than building up a mountain of debt… Just like compound interest on your savings stacks up in your 20s, so too does it stack down in terms of debt!
4. Thoroughly Research Your Investments
Let’s say you’re invested in Bitcoin. You should be able to argue against Bitcoin better than Peter Schiff or any of the other biggest cryptocurrencies out there. If you’re an investor with a long time horizon and you truly believe in the asset, then you need to spend the time to strengthen your conviction. What would it take for you to lose faith in this investment? Ask yourself this question before you invest, not during the emotional turmoil of the highs and lows of this asset. If you find yourself getting emotional during the ups and downs, it’s likely because you’re either overexposed to the asset and need the money short term or don’t have confidence in your investment.
5. Dollar-Cost Average
Dollar-cost averaging is an easy, no-brainer strategy to continually invest in assets you believe in whilst diversifying your time risk. It’s a set and forget way where you can focus on other things with the added benefit of easing emotional and psychological pressure. This is because, with the dollar cost average strategy, you buy the lows and highs passively and thus average into an upward trending asset.
Your 20s can be a fantastic time to begin investing. I hope this article introduced you to a variety of specific and actionable advice you can implement today to build wealth. By taking time to plan today and creating a strategy that aligns with your financial and personal goals. You can put yourself in a position to take control of your money and profit.
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