How to invest in your 20s and 30s

There are some things where it can pay to be quick off the mark. The queue for Wimbledon, Glastonbury tickets, paying a parking fine – and investing. You might think of the latter as the remit of the middle-aged and better-off. But the reality is that starting investing early, even if it means starting small, can reap dividends. Figuratively and sometimes literally.

At what age can I start investing?

The age at which you can legally hold stocks and shares in your own name is 18 in the UK. Before this age, the only way it’s possible to dip your toes into the investing ocean is if your parents take out a junior stocks and shares ISA (or JISA) on your behalf. From age 16, while your parents still technically hold the investments, you are legally allowed to manage the ISA and make decisions on how and where the money is invested.

But, while you can invest from the age of 18, many people don’t think about getting started until later in life.

Should I start investing in my 20s and 30s?

The earlier in life you start investing, the longer those early investments have to grow and help you achieve your goals. Plus, a longer investment timeframe means that you can afford to take more risk with what you invest in, as your investments should have time to recover if they take a disappointing dip. And, while there are no guarantees, with more risk comes the potential for more reward.

So, there’s a strong argument for starting investing in your 20s or 30s rather than waiting until you hit your 40s or 50s. Though, as always when it comes to money matters, you’ll need to think whether investing is the right approach for your financial circumstances and your ultimate goals.

Should I prioritise saving over investing in my 20s and 30s?

It doesn’t have to be either/or. Cash savings are typically a more flexible financial resource. With an easy-access savings account, for example, you can get your hands on the money whenever you want without any risk to your capital. With investments, on the other hand, the value may fall as well as rise. You don’t want to risk having to withdraw your funds at a low point. So we advocate building up a reasonable emergency cash savings buffer – enough to cover a few months of essential outgoings in case of disaster.

But once that savings buffer is in place, it’s up to you whether you want to prioritise saving or investing any additional money. We run through a few of the things to consider a bit further down.

Should I pay off debt before I start investing?

It depends on the nature of the debt, including whether keeping the debt would end up costing you more than you could earn through investing.

If your debt is affordable and carefully managed – a low-interest loan that you’re paying off in agreed instalments, for example – then holding back from investing in favour of paying the loan off early may not be worth it. However, if you have a lot of expensive debt, such as credit card borrowing, high-interest loans, or an unauthorised overdraft, chances are that this will be costing you more than you could earn by investing. So it’s probably best to pay off these types of debt first.

What should I consider before I start investing?

So you’ve paid off any expensive debt and built yourself a cash savings buffer. You’ve got some money burning a hole in your pocket that you’re keen to do something sensible with before you’re tempted to fritter it away.

Investing it could be a good option, offering you the potential for higher returns than putting your money into savings. But there are a few questions you should ask yourself before jumping in feet-first.

1. What are you investing for, and when? While some types of investment are more volatile than others, no investment is completely risk-free. This means that the value of your initial investment can go down as well as up. Don’t be put off by this. Over time, there are usually more ups than downs. But it does mean that time is crucial. Experts recommend that you should keep your money invested for at least 5 years, and ideally more. So if you’re saving for a big holiday in a couple of years’ time, then cash savings might be best. If, on the other hand, you’re saving up a deposit to buy a house with a 5+ year timeframe, then investing could be a good option.
2. Are you already paying into a pension? When you’re in your 20s or 30s, the idea of retirement may seem light years away. But if you want to enjoy your golden years (and who doesn’t?), then starting saving for them early could make a big difference. You may, of course, be ahead of the game and have started paying into a pension the minute you got your first job. But, if not, it could be time to start, whether it’s a workplace or personal pension. Technically, most pension funds are investment funds, so you’d just be switching one type of investing for another. The key differences are that you won’t be able to access the money until you’re at least 55 (we know, we know – but we promise it’ll be worth it). And, more appealingly, that you get tax relief on pension contributions. This is basically free money from the government.
3. How nervous does the idea of losing money make you? As we mentioned in point 1, the value of investments can go down as well as up. This means that, at some point, you may end up with less money in your investment pot than you originally paid in. The key thing if this happens is not to panic and immediately sell your investments, as that’s a sure-fire way to make a loss. There’s a good chance that the value will recover with time and an improved market. But if the idea of losing money, even temporarily, sends shivers down your spine, then you probably need to take a very cautious approach to investing. Or if you’re comfortable with the reality that you may lose in the short term to gain in the long term, then you could consider taking on riskier investments.
4. Are you investing in the expectation of getting rich quick? If so, it might be best to stop now. It is possible for some people to make decent money in a short space of time through certain investment methods – such as day trading. But to have even a hope of making a living from day trading requires time, experience, investment knowledge and dedication that many people investing in their 20s and 30s won’t have. For most people, the rewards of investing are best enjoyed several years down the line, and with much less effort.

What are my investment options in my 20s and 30s?

You have the same range of investment options in your 20s and 30s as you do at any age. There are four mainstream types of asset you can hold:

• Government bonds. These are essentially IOUs from the government. The government borrows some money off you and pays you an agreed rate of interest.
• Corporate bonds. These are similar to government bonds, but you’re loaning money to companies instead. They are a bit higher-risk than government bonds, because there’s more risk of a company defaulting. They tend to pay higher rates as a result.
• Company shares. These are little chunks of a company. By becoming a shareholder, you own a fraction of the company the share is in.
• Property. This can be direct investment, by buying a house or flat and earning money from rent or capital growth. You can also invest indirectly in commercial property.

You may also come across so-called “alternative investments”. These are less mainstream investments such as bitcoin, gold, or even art. They’re at the riskier end of the investment scale, so aren’t ideal for those new to investing.

You can either invest directly in assets, for example by buying shares, or opt instead to invest in funds. Funds are collections of assets. Depending on the fund, it may be made up of several different types of asset, or only of one type of asset (typically shares). Whereas only a single person can buy a single share, lots of different investors can buy a stake in a fund. This allows investors to get exposure to a wider range of assets without having to spend the money that would be necessary to buy each asset outright.

What’s the best way to start investing in my 20s and 30s?

Good question. On one hand, you’re probably quite new to investing, and might benefit from keeping things simple. On the other hand, starting young may allow you to take more investment risk than someone starting out in their 40s or 50s. Below are a couple of options to consider.

An important thing to bear in mind is that it doesn’t have to be an all or nothing approach. Subject to how much money you have to invest, there’s nothing stopping you splitting your investments across a few funds, plus a selection of shares, and perhaps some other asset types. The most important thing is to create a diverse and balanced portfolio, as this will help to spread and manage your investment risk.

The “keep it simple” approach: invest in funds

As we’ve mentioned earlier, investing in funds lets you get exposure to lots of different assets in one fell swoop. This can save you time and (potentially) money. Some of the simplest funds to understand are index funds or exchange-traded funds. These funds hold shares in multiple companies. They’re designed to mimic the performance of a stock market index, such as the FTSE 100. This includes the 100 biggest companies on the London Stock Exchange.

There are thousands of different funds to choose from, so you can diversify your portfolio even by only buying a few funds. For example, you could choose one that tracks the UK stock market, one that tracks another international stock market, and one that includes a range of different asset types.

The higher-risk approach: invest directly in shares

Shares in companies – also known as equities – are seen as the most volatile of the mainstream types of investment. Share value depends on an individual company’s performance, which can be subject to a host of internal and external influences. This can make for bigger and faster returns than other types of investment. But you need to also be aware that it can also risk steeper losses. You can minimise the risk of losses in a couple of ways:

1. Opt for shares in larger, better established companies with a proven track record. These are likely to provide more reliable, if perhaps less sensational, returns than innovative new start-ups.
2. Don’t put all your eggs in one basket. Buying shares in multiple companies, and from different industries and countries, will minimise the chances of poor performance in a single company or sector having a catastrophic impact on your portfolio.

How do I get started with investing in my 20s and 30s?

There are a few options to practically get investing. One is to find a professional financial adviser who can recommend investments for you and buy and manage them on your behalf. For a fee, of course.

Alternatively, you can go for one of the newer breed of online investment platforms. With many, you choose and manage your investments yourself. This is known as DIY investing. Or you can try something called “robo-advice”. With these, you are typically recommended a ready-made portfolio of assets based on your responses to a series of questions. All monitoring and management is dealt with by the platform. Here’s how to get started with online investment platforms.

1. Decide how you want to invest. Choose between ready made portfolios and DIY investing.
2. Choose a platform. One you’ve decided whether you want a robo-advisor or a DIY platform, compare accounts and open one.
3. Pay money into your account. Some accounts have a minimum deposit amount.
4. Choose your investments. If you’ve gone with a robo-advisor, you’ll have a set number of portfolios to choose between. Otherwise you’ll need to decide on the specific assets you want.
5. Get investing. Remember, it’s fine to start small and grow your investments over time.

Top tips for investing in your 20s and 30s

1. Don’t delay getting started. You need to think carefully about the best approach to saving for you. But don’t dwell so long on it that your money ends up stagnating in a low interest savings account. As our expert Danny highlights above, the earlier you start investing, the longer your money has to grow.
2. Invest small amounts, regularly. Many platforms let you start investing from as little as £1. So, don’t assume you have to build up thousands before you can get going. Consider ringfencing a certain amount from your paycheque each month for investing, and drip feeding it into your account.
3. Make full use of tax-efficient wrappers. If you invest within a stocks and shares ISA, for example, you won’t pay tax on any of your investment interest, dividends or gains.
4. Diversify your portfolio. No matter how much you have to invest, diversification is crucial to manage your risk and minimise the chance of losses. This involves spreading your money across different types of investment, market sectors (tech, finance or utilities, for example) and countries.
5. Plan for the long-term. The idea of making a fast buck day trading may seem exciting, but very few people actually succeed in this approach. And, much as we hate to say it, those that do are probably far longer in the tooth at this investment game than you. For most people, a buy-and-hold approach to investing is more likely to reap ultimate rewards.
6. Don’t just use the first investment platform in Google’s search results. Check out a few options and pick the one that’s best for your budget and the kind of investments you want to make. Take a look too at the tools and information they have to help you understand what to invest in, and make those investments.

By starting at age 20, you’d have to invest £54 a month to hit your £50,000 target. By the time you reached age 50, you’d have invested a grand total of just under £20,000, and made gains of nearly £30,000. When you’re just starting out in employment, and money may be tight, £54 a month might seem like a bit of a sacrifice. But when you compare that with how much you’d have to invest to hit a £50,000 target if you started at age 40 (£300 monthly, adding up to £36,000 overall and returns of just £14,000), that early sacrifice might seem more worthwhile.

Pros and cons of investing in your 20s and 30s

Bottom line

Investing in your 20s and 30s rather than waiting until you’re older has the potential to reap big rewards. You’ll have most of the same investment options as older investors, and many online platforms let you invest from as little as £1. So provided you’ve paid off expensive debt and built an emergency cash fund, understand investment risks, and are able to lock in your money for at least 5 years, there’s really nothing stopping you.

Frequently asked questions

• Is it better to invest in stocks and shares or funds in your 20s and 30s?

  It’s entirely up to you. There’s nothing stopping you investing in both if you want to. Funds are usually more straightforward, allowing you to get exposure to multiple assets for relatively little time and effort. So they might be best for those who are new to investing or with little time on their hands. Stocks and shares involve more time and effort to select, buy and manage but, with the right strategy, offer the potential for higher reward. Just bear in mind they also carry a higher risk of loss.

• Is 30 too late to start investing?

  Nope. In fact, we’d argue that there’s no set age that’s too late (or too early) to start investing. It’s more about your circumstances, your goals and your timeframe.

• Can investing get me rich quickly?

  Almost certainly not. For most people, investing will reap rewards over several years rather than several days, weeks or even months. While it isn’t impossible to make money faster using a technique called day trading, this is a high-risk strategy. It involves time, knowledge, experience and grit. And even with these attributes, a lot of people get it wrong.