Why Investing Early Matters: A Guide to Choosing the Best Investment Accounts

June 8, 2023 Danielle A. Calise

As a young adult, it can be easy to feel like investing is something you don't need to worry about until later in life. However, the truth is that investing early can have a huge impact on your financial future. In this article, we'll discuss why it's important to start investing as early as possible, the benefits of starting an investment portfolio at a young age, and the best investment accounts for young adults.

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Why Investing Early Matters

The most obvious reason to start investing early is that it gives your money more time to grow. Even small investments made in your 20s or 30s can have decades to compound and grow, meaning you'll end up with a lot more money than if you waited until your 40s or 50s to start investing.

But there are other reasons why investing early is important as well. For one, it can help you build good financial habits. When you start investing early, you learn to prioritize saving and budgeting, which can help you avoid debt and financial stress later in life. Additionally, investing early can help you take advantage of market fluctuations and potentially earn higher returns over time.

Benefits of Starting an Investment Portfolio at a Young Age

Starting an investment portfolio at a young age means you have more time to take risks and recover from any losses. Young adults often have fewer financial responsibilities, which means they can afford to invest more aggressively and potentially earn higher returns. Additionally, starting an investment portfolio early can help you build a strong financial foundation for the rest of your life.

Another benefit of starting an investment portfolio at a young age is that it can help you achieve your long-term financial goals. Whether you're saving for retirement, a down payment on a house, or something else, investing early can help you reach those goals faster and with less stress.

Best Investments for Young Adults

When it comes to investing as a young adult, there are a few key things to keep in mind. First, it's important to invest in a diversified portfolio that includes a mix of stocks, bonds, and other assets. This can help reduce risk and potentially earn higher returns.

Second, it's important to choose investments with low fees. High fees can eat into your returns over time, so look for investments with low expense ratios and other cost-saving features.

Finally, consider investing in index funds or exchange-traded funds (ETFs). These types of investments track a market index, such as the S&P 500, and can offer broad exposure to the market at a low cost.

Overview of the Best Investment Accounts for Young Adults

There are a few different types of investment accounts that are well-suited for young adults. One option is a Roth IRA, which allows you to contribute after-tax dollars and withdraw funds tax-free in retirement. Another option is a traditional IRA, which allows you to contribute pre-tax dollars and deduct your contributions from your taxable income. However, you'll pay taxes on withdrawals in retirement.

For young adults who are just getting started with investing, a taxable brokerage account can be a good option. This type of account doesn't offer any tax benefits, but it allows you to invest in a wide range of assets and can be a good way to build your investment portfolio.

How to Choose the Best Investment Accounts for Your Needs

When choosing an investment account, it's important to consider your goals, risk tolerance, and tax situation. For example, if you're in a high tax bracket now but expect to be in a lower tax bracket in retirement, a Roth IRA might be a better option. On the other hand, if you're in a low tax bracket now but expect to be in a higher tax bracket in retirement, a traditional IRA might make more sense.

Additionally, consider the fees and investment options offered by each account. Some investment accounts come with high fees or limited investment options, which can eat into your returns over time. Look for accounts with low fees and a wide range of investment options.

Tips for Young Investors Getting Started with Investing

If you're a young adult just getting started with investing, there are a few tips you should keep in mind. First, start small and focus on building good habits. Even if you only have a few dollars to invest each month, make it a priority to invest consistently and build your portfolio over time.

Second, don't be afraid to take risks. Young adults often have a longer time horizon for investing, which means they can afford to take on more risk and potentially earn higher returns. However, it's important to balance risk with diversification and avoid putting all your eggs in one basket.

Finally, seek out education and resources to help you make informed investment decisions. There are a wealth of online resources, books, and courses available to help you understand investing and make smart choices.

Tools and Resources for Investing as a Young Adult

There are many tools and resources available to help young adults get started with investing. One great option is a robo-advisor, which uses algorithms to create and manage an investment portfolio for you. Robo-advisors typically offer low fees and a range of investment options, making them a good option for young investors who are just getting started.

Another option is to use a stock trading app, such as Robinhood or Webull. These apps allow you to buy and sell stocks and other assets on your smartphone, making it easy to invest on the go.

Finally, consider seeking out financial advisors or investment professionals who can provide personalized guidance and advice. While this can be more expensive than using a robo-advisor or trading app, it can be a good option for young adults who want more hands-on support.

Importance of Tracking Your Investments and Progress

No matter which investment accounts or tools you choose, it's important to regularly track your investments and progress. This can help you stay on top of your portfolio performance, make informed decisions about buying and selling assets, and adjust your strategy as needed.

One great way to track your investments is to use a personal finance app, such as Mint or Personal Capital. These apps allow you to link your investment accounts and track your portfolio performance in real-time.

Conclusion and Final Thoughts on Investing Early

Investing early is one of the most powerful things you can do for your financial future. By starting an investment portfolio at a young age and choosing the best investment accounts for your needs, you can build a strong financial foundation and achieve your long-term financial goals.

Remember to start small, take risks, and seek out education and resources to help you make informed investment decisions. And don't forget to regularly track your investments and progress to ensure you're on the right track.

With the right approach and a long-term mindset, investing as a young adult can be a rewarding and profitable experience.