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In Your 20s? Time Is On Your Side—Keep It There

Your 20s are typically a decade of unparalleled growth and change. It’s during this 10-year period that many people graduate from college, start careers, travel the world, buy their first car or home or get married. It’s also a time when a lot of people find themselves strapped for cash.

That’s particularly true for today’s twentysomethings, many of whom are graduating from college with high levels of student loan debt—state averages ranged from $18,850 to $38,500 in 2017.1

This generation is also earning less money than their parents did when they started out 30 years ago.2 As a result, many twentysomethings are finding it difficult to make ends meet—let alone set aside a little money for the future.

In fact, people in their 20s who have a 401(k) or brokerage account are part of a small minority of Millennials who participate in the stock market. According to Bankrate’s 2016 MoneyPulse survey, only one-third of millennials invest in the market.3

Now for some good news. Young investors have two significant tailwinds that can help them achieve their goals if they start early: time and compounding. Thanks to compounding and having more time, you’re more likely to recover from periods of market volatility if you start saving and investing in your 20s than if you had started in your 30s or later.

The takeaway? Even if you only have the means to save and invest modest amount, by all means do.

Here are our top three investing tips for Millennials:

1. Start right now: The biggest benefit of investing in your 20s is the sheer length of time you have until retirement. You might think you don’t have enough money to invest, but a little bit can go a long way when you start early.

That’s because your portfolio will have time to benefit from the potential effects of compounding—the process of generating additional earnings by reinvesting an investment’s gains over a long period of time. In fact, the sooner you start saving, the less you’ll need to save each month in order to reach your goal. Conversely, the longer you wait, the more you’ll need to sock away.

2. Be aggressive: If you have a higher risk tolerance, you can stomach taking bigger risks that may pay off with higher returns over time. In your 20s, you generally have more risk capacity than you would if you were closer to retirement. Yes, you could end up having bigger losses when the market falls, but you also have more time to potentially make up for those losses.

Keep in mind that percentage losses don’t tend to add up to a big dollar amount compared to later down the road when your portfolio is likely to be large.  For example, a 30% loss on a $5,000 portfolio is $1,500. That may seem like a lot, but it’s a small fraction of your contributions and earnings over 30–40 years. On the other hand, a 30% loss on a $500,000 portfolio translates to $150,000. That’s a lot more difficult to handle if you only have a few more years until you retire. 

History shows that over longer periods of time, aggressive, stock-centric investment portfolios far outpace more conservative or moderate portfolio allocations over time, though past performance is no guarantee of future results.

3. Avoid fees: Make sure you know what the investment services you use cost and how that will affect your returns over time. It’s easy to overlook the toll of investment fees, particularly when they seem so insignificant—what’s 1% in the grand scheme of things? But compounding works for fees, too, which could eat away at your bottom line over time. Your best bet is to keep fees as low as possible.

1The Institute for College Access and Success, “Student Debt and the Class of 2017,” September 2018.

2U.S. Census Bureau, “Young Adults, Then and Now,” 2013.

3Jill Cornfield, “Millennials slow to start investing in stock market,”, 7/6/2016.

What You Can Do Next

Remember, time is on your side. Investing in your 20s can increase the likelihood of reaching your financial goals,  

Important Disclosures

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

Investing involves risk, including loss of principal

Please read the Schwab Intelligent Portfolios Solutions™ disclosure brochure for important information, pricing, and disclosures relating to the Schwab Intelligent Portfolios and Schwab Intelligent Portfolios Premium programs.

Schwab Intelligent Portfolios® and Schwab Intelligent Portfolios Premium™ are made available through Charles Schwab & Co. Inc. (“Schwab”), a dually registered investment advisor and broker dealer. Portfolio management services are provided by Charles Schwab Investment Advisory, Inc. ("CSIA"). Schwab and CSIA are subsidiaries of The Charles Schwab Corporation.


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