Why you need to invest aggressively in your 20s

During the final year of my bachelor’s degree I enrolled in a course over the summer in order to earn extra credits. The course, which was ‘Introduction to trading’, covered a wide range of topics such as Mechanics of Trading, Market Analysis, Japanese Candlesticks, Elementary Charting, Risk Management & Profit Maximisation.

The course was actually one of my favourite classes and really helped me shift my attitude towards money and investing.

For example, I recently came across a 2016 Wall Street Journal analysis which talked about twentysomethings’ most common money mistake.

According to the analysis, twentysomethings’ most common money mistake is investing too conservatively.

I believe that your 20s is the time to be bold (especially when it comes to your investment accounts).

Reasons to invest aggressively while you still can:

You won’t need the money any time soon:

If you’re like me then that means you live comfortably at home and haven’t had the burden of paying bills yet. As we get older our responsibilities & obligations will increase. We’ll suddenly have rates & taxes, medical insurance, car insurance and all the many expenses that come with being financially independent. When you’re young investing is more about not spending on unnecessary things, the older you get it gets harder to put money aside to save. So it’s much easier to start saving early, when its more about not spending rather than finding the money to actually do so.

Small differences grow overtime:

During my course I also learned about the power of compound interest. This power means that a little saved over a long time can deliver big returns. Because after all, you’re playing a long game.

Better to have done it than to regret later on:

Being in your 20s can often present a false impression of having enough time to do everything. One minute you’re graduating college, next minute its your 30th birthday.

For instance we think that because we’re not sickly today we can afford to ‘’lowball’’ on health insurance; In a recent interview I watched on Money Money Money with Vishal Kapoor, the Regional Head of Wealth Management at Standard Chartered Bank, he talked about the fact that a large number of the clients he had worked with were grossly underinsured when they came to him.

His advice to everyone was to ‘’go for the insurance you’re going to need when you’re 60 not the one you need now’’. I think the 20s is definitely the time in your life where you actually need to draw up some sort of financial plan and start taking charge of your finances. It might not seem important to start saving for retirement at 21 but the difference it can make is impeccable.

Consider this simple chart by Business Insider's Andy Kiersz;

Emily and Dave both start saving $200 per month in a retirement fund.

Emily puts $200 per month into a retirement account with an estimated 6% rate of return starting at 25. Dave starts saving $200 per month at 35, just 10 years after Emily.

Both continue to add $200 each month until they retire at 65.

By the time they both retire Emily has made $400 289 and Dave has $201 907. Emily has managed to make almost twice as much even though, in theory, she only contributed 33% more of her income in those 10 years.

And that, ladies and gentlemen, is the power of compound interest *drops mic*

I’ve also attached the calculations I did in order to understand where all the numbers were coming from. And yes, it’s on paper. I’m old school. :)

So, what are the most important takeaways from this entire article?

1. Decreasing your spending is more powerful than increasing your income.

2. You’re only in your twenties for 10 years. Now let’s all think about the fact that 2008 was 10 years ago and yet it feels like just yesterday. Now, take a deep breathe, we’re all aging gracefully together.

3. Invest money so it can earn more money. ‘’Make your money work for you’’ (advice from my mom).

4. Just working hard will not make you wealthy. There is too great a risk in not doing anything.

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