Your Investment Options in Your 20s or 30s

By Eric Tyson

If you’re like most folks in their 20s or 30s, you may not have saved as much as you would have liked during your early working years. Regardless of how much (or how little) you have invested in banks, mutual funds, or other types of accounts, you want to invest your money in the wisest way possible and have it grow over time without exposing it to extraordinary risks.

Here is some background to help you understand how to best focus your efforts to become a more knowledgeable and successful investor.

  • Investment options: Making the best investments without understanding your range of options and the strengths and weaknesses of each is difficult. Do you understand the investments that you currently own, including their potential returns and risks? If you invest in or plan to invest in individual stocks, do you understand how to evaluate a stock, including reviewing the company’s balance sheet, income statement, competitive position, price-earnings ratio versus its peer group, and so on?

Last but not least are issues that come up if you work with a financial advisor for investment advice. Do you understand what that person is recommending that you do, are you comfortable with those actions and that advisor, and is that person compensated in a way that minimizes potential conflicts of interest in the strategies and investments he or she recommends?

  • Tax considerations: For many working people, taxes are either the number-one or -two largest expense categories. For starters, do you know what marginal income tax bracket (combined federal and state) you’re in, and do you factor that in when selecting investments? For money outside of retirement accounts, do you understand how these investments produce income and gains and whether these types of investments make the most sense given your tax situation?
  • Short-term money: Short-term money includes money you’d use in an emergency or for a major purchase within the next few years. Do you have enough money set aside for short-term emergencies, and is that money in an investment where it doesn’t fluctuate in value? Is the money that you’re going to need for a major expenditure in the next few years invested in a conservative, low-volatility investment?
  • Long-term money: Long-term money includes money set aside for longer-term use such as for retirement. Do you have your money in different, diversified investments that aren’t dependent on one or a few securities or one type of investment (that is, bonds, stocks, real estate, and so on)? Is the money that you’ve earmarked for longer-term purposes (more than five years) invested to produce returns that are greater than the rate of inflation?