Smart Money Moves for Your 20s: An Investment Guide 20$ to 14M$

f you have already started your investment journey in your 20s or are planning to start now, then this blog is written just for you.

Why to start investment in your 20’s

Investing in your 20s is the best time to start because you have time on your side, and time is the most valuable asset when it comes to investing. The amount you put into your investments may not be as crucial as the duration you plan to invest for. This is the reason why I always recommend that you start your investment journey as early as possible. Do it

And through this blog, I will also guide you on how you can earn more in the long term with a small investment plan.

Before you start your journey, the first thing that comes to mind is how much amount you should start investing with. People often ask this question, and if they have a small amount for investment, they think it’s so small that it won’t make much of a difference, so they keep waiting for their salary to increase. But that’s the wrong way to think about it. Instead, we need to understand how to determine the minimum investment amount.

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First Step

Minimum Investment

To determine the minimum investment, there is an easy rule called the 50:30:20 rule. Let’s understand this with an example. Suppose you receive $100 per month. Out of this, you will allocate $50 for your needs, which include essential expenses like EMIs, rent, and food—these are the things that are necessary for your life. These are your needs, not desires or wants.

50:30:20 rule

50

And then, according to the 50:30:20 rule, 30% or $30 of your salary should be spent on your wants and desires. For example, if you want to buy a new phone, a car, upgrade your TV or laptop, or plan a vacation, and so on.

30

This is a great way to think about life. If you invest all your money and end up with a lot of money in old age, what did you do in your youth? That is why it is important to balance it out – to enjoy life while living it and also invest. That’s why the 50:30:20 rule is created, and this rule is indeed very powerful.

20

And now, the last part of the 50:30:20 rule suggests that you should invest 20% of your salary. The 20% is the minimum, meaning you should invest at least this percentage.

50:30:20 a Spin In Investment

Now, every year, there is usually some increase in everyone’s salary. So, should the 50:30:20 rule also be applied to this increment?

The answer is no because we should try to ensure that our desires and needs do not increase significantly, but our investments continue to grow. This is because it’s possible that if you consistently invest only 20%, it may not be enough to secure your future.

In my opinion, there should be a twist in this rule. Instead of applying the 50:30:20 rule to the increased part of your salary, you should consider a rule like 20:30:50. This means that for the increased portion of your salary, allocate 20% for needs, 30% for desires, and 50% for investment. This way, our investments will continue to grow more than our needs and desires.

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Next Step

Now, the next step in investment is very important, and we need to understand what the ultimate meaning of investment is. This is where the concept of compounding comes in. In my opinion, compounding is the eighth wonder of the world, and it is something that, if you understand, you will grasp the power of investment. Compounding not only applies to investments but can also be seen in every aspect of life. It can manifest in your relationships, your learning curve, and even in the growth of your knowledge.

Everything is a factor of how much you’re putting in every day, every week, every month, and every year, and how much it’s growing. Here is a simple way to think about compounding: If you receive a $10 interest on your $100, your money becomes $110. It means it has increased by $10. The human mind often thinks linearly, assuming that as time progresses, it will grow by $10 each time. However, compounding doesn’t work that way.

How Compounding Works

In compounding, if your money keeps growing at a rate of 10% every year, then in the first year, it will become $110. However, in the next year, instead of reaching $120, it will be $121. This means your money has increased not by $10 but by $11 in the second year. In the third year, it will grow not by $11 but by $12.1, and so on. Here, you can see that even though the interest rate remains at 10% every year, the actual interest amount is increasing each year. This is what compounding is. Compounding is a rate of return on the increased base that you already have. This means that the entire amount, which is increasing every year due to interest, is earning interest, not just the initially invested $100.

How does compounding work in investing? Compounding means that if your money keeps growing year after year, over a really long period of time, you will receive significant increments each year that will take care of virtually everything.

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A Question

Now, let me ask you a question; I believe most people won’t be able to answer it correctly. Suppose you are 20 years old, and you regularly invest every month starting with $20, and this investment increases by 5% every year. Also, considering there is 5% inflation, if you invest these $20 in the stock market where you get an approximate return of 15%, how much will these $20 per month amount to when you reach the age of 65?

You might be shocked to know that starting with your $20 at the age of 20 and investing every month until the age of 65, with a 5% annual growth and 5% inflation, along with a 15% return every year, you would have approximately $1,900,000. This is only considering the increment without any further additions. If everyone adds up, it could be around $2,200,000.

Regarding inflation, its impact could be felt over 45 years, and although today’s value might not be the same, it would still be substantial enough to fulfill almost all your dreams. Now, imagine if the return is not 15% but increases to, let’s say, 20%. How much would you have after 45 years? You might think that a 5% extra return won’t make much difference, but believe me, this difference is significant. With a 20% return, you would have approximately $14,250,000, which is almost 7.5 times more than the amount with a 15% return. his the power of compounding.

Now, you must have understood the power of compounding. The next crucial aspect in investing is where to invest. According to me, you should not invest in Fixed Deposits (FDs). As for gold, you can invest a little, but not too much. In real estate, I don’t recommend investing in your 20s because it requires a substantial investment. In my opinion, the best option for you is the stock market or equity.

Please note that cryptocurrencies are not included in this recommendation. Cryptocurrencies can offer very high returns, but they also come with the highest risk. You might earn a 10,000% return in a year, but there’s also a possibility of losing all your money.

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Where To Invest Last Stage

Now, I’ve told you where you can invest your money. Now, let me share my personal split based on my experience. You should allocate 10% of your investment amount to gold, ensuring you receive a fixed return on at least a portion of your investment each year. Next, you should invest 70% of your portfolio in equities. I’ll explain where to allocate this further. Finally, allocate 20% of your investment in cryptocurrencies. I’ll also guide you on where to invest in cryptos later.

Gold 10%

Let’s talk about gold first. Investing in gold doesn’t mean buying jewelry. We should invest in digital gold or Sovereign Gold Bonds (SGBs). In these options, you get an additional 2.5% return, and there are no 10 different types of taxes and manufacturing costs.

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Equities 70%

Now, talking about equities, you should allocate 70% of your total investment in equities. This is the bulk of your investment, and the highest returns will come from here. Split this equity investment into two parts: allocate 40% to index mutual funds, where market experts manage your money, and you don’t need to put in much effort. You might not get the highest returns here due to higher commission rates, but you will have steady returns as the market and GDP grow. As for the remaining 60% of the equity investment, you should focus on value and momentum. This strategy involves investing in growing stocks until they start falling. While it carries a bit more risk, it has the potential for higher returns.

Crypto 20%

Finally, in crypto, avoid investing in meme coins. We don’t want unnecessary risks. According to my recommendation, there are only three coins where you can invest, and you will always get good returns. These three coins are Bitcoin, Ethereum, and Solana. These are the only coins where I personally invest, and I would recommend them to you as well.

I hope you now understand how to start your investments in your 20s. You can input various figures into an investment calculator with compounding available online to get personalized results. Okay, thank you for your interest, my brothers and sisters!