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Do you want to become the CEO of your finances? Here’s what the experts say
Young people can often be accused of having bad financial habits. However, data shows that many people in their 20s are already practicing healthy spending habits. Euronews spoke to some financial experts to get their take on the best way to invest.
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According to the Hargreaves Lansdown Savings and Resilience Barometer, an estimated 30% of people aged 20 to 24 have “just in case” savings, and that figure rises to 53% for people aged 25 to 24. 29 years old.
This is despite those in their 20s only having around £10 a month of disposable income to put aside, while those aged 25 to 29 have a disposable income of around £81 a month, Emma Wall, head of investment research and analysis at Hargreaves Lansdown, told Euronews.
However, creating your financial plan may seem intimidating at a young age, but it can be done.
Planning your future in advance
Behavioral economics is a useful term to know. It refers to what comes into play when you make financial decisions. For example, it suggests that most people are much more likely to gravitate toward their current needs than to focus on future needs, such as investing for retirement.
Hargreaves Lansdown head of personal finance Sarah Coles said: “Don’t be afraid. With a little planning, you don’t have to sacrifice everything for your future. In your 20s, you have time on your side and the power of interest compounds take advantage.”
Essentially, this means giving your money time to grow.
Coles also noted that it is important to evaluate any investment carefully as all investments involve risk and there is no promise of high returns.
Historically, investment returns are better than cash deposits. However, savings accounts are also necessary for short-term goals, such as vacations or unexpected bills.
Coles also highlighted the importance of having enough money set aside to cover at least three months of essential expenses, that is, having enough money set aside to stay afloat in times of financial hardship.
“Setting up a direct debit on payday means you don’t have to remember to prioritise your financial health every month. Most platforms allow you to set up a regular investment plan from as little as £25 a month,” added Sarah Coles.
What investments should people in their 20s look into?
If you’re just starting out on your investment journey, it can be difficult to know where to start. A vital component to the investment process is educating yourself about the different types of investments and what best fits your financial goals and current circumstances.
When you’re in your 20s, you’re in the accumulation stage – you’re earning money and paying off your investments, rather than relying on them for retirement income. That said, you have a long-term opportunity, which means you have time to build your financial portfolio, which is essentially made up of a collection of all your financial assets, such as bonds, stocks, shares and commodities.
Emma Wall of Hargreaves Lansdown believes that “between 80% and 100% of your portfolio should be in equities, with around half of that allocation in US equities, another 10% in UK equities, 10% in Europe, 5% in Japan and the remainder in emerging markets.”
Another option suggested by Emma Wall could be to buy a single fund that is a combination of cash, stocks and bonds into a single investment.
Current Investment Trends for People in Their 20s
With constant technological innovation and the growth of “finfluencers” on social media platforms, many young people find it significantly easier to access financial information and investment opportunities.
According to a survey of 2,000 people by Hargreaves Lansdown, around 21% of investors aged 18 to 34 get market forecasts and stock advice from Instagram, 16% turn to Facebook for financial advice, 14% turn to they get inspiration from Reddit and 8% turn to TikTok.
Naeem Aslam, Chief Investment Officer at Zaye Capital Markets, said: “While Gen Z may believe that there are numerous open and free resources available to them to obtain useful information for their investment decisions, which often align with reality, it is crucial to recognize that experience is the most valuable factor.
“What we mean by this is that a financial advisor, having seen similar situations before, would have more experience in investing, diversifying the available capital and producing a significantly higher return.”
Essentially, seeking out financial information at any age is a good idea, but be sure to treat it with caution, especially if it comes from unregulated sources where you won’t have protection if something goes wrong. It’s also important to take the time to check out additional information or research on any new ideas you may have discovered. It is always best to discuss with a financial professional before making any hasty decisions.
A reminder: The information in this article does not constitute financial advice; always do your own research to ensure it is appropriate for your specific circumstances. Please also remember that we are a news website and aim to provide the best guides, tips and expert advice. If you rely on the information on this page, you do so entirely at your own risk.