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The 5 Best Investments You Can Make in Your 20s

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The 5 Best Investments You Can Make in Your 20s

Click the link to go to Tim Vipond’s Personal Finance Channel.

This article is about the five best investments you can make in your 20’s that will pay off massively later. There are two different types of investments that I’m going to talk about, time and money. They both require a big commitment, and they are both very different.

When you are young, you generally have a lot more time but less money, and when you’re older, you generally have more money but less time. Therefore, there is always this tension between time and money and making investments. I’m going to give you examples that fall into both categories. The earlier that you can make these investments, the better. One way to think about it is time versus money. The other way to think about these investments is whether you’re investing in yourself, developing yourself, or investing in something else that will pay off for you (i.e. an investment portfolio or real estate). Below we will look at examples of both investing in yourself and investing in other things.

Investing in time to build your skills

The first, most important investment is investing in skills, training, and education for yourself. This investment is the number one payoff. When I think about what enabled me to be successful as an entrepreneur, in founding CFI or having a career before, it was in skills and skills development through university and then later through online education. When I started CFI, I had to figure out how to bootstrap this business, and I spent a lot of time taking courses on Udemy and other platforms where I could learn things like search engine optimization, which was not something that I learned in college. I also brushed up my finance skills or learned finance in new topic areas that I didn’t know about before.

When I turned to online education, I quickly re-skill and re-tool for an affordable price. For this reason, I highly recommend online education in whatever field may interest you. The skills that you set up early in life will pay off later. Every entrepreneur has something that they are skilled or talented at that enables them to launch a company. They don’t just launch a company based on their personality alone; they also have underlying technical skills. This is the reason why the first thing I always recommend is investing in your skills. The good news is, investing in your skills is primarily an investment in time, not money.

It is now possible to get a world-class education online for very little money. It’s really about carving out the time and sticking with it, making sure you’re committed to learning new things. Money should not limit you to getting unique skills or getting an education, and you are not limited by money with online education. Whether it’s Corporate Finance Insitute, Udemy, Coursera, or LinkedIn Learning, you can learn from world-class professionals on any of these platforms.

Investing in your network

The second most important investment you can make is your network and the relationships with the people around you. It is necessary to have skills, but you also need other people to work with you to become successful. Starting in your 20s, I recommend building these relationships as early as possible. Get to know the people you went to school with and figure out what you have in common in the business world, how you might work together in the future, or how you can share your networks. Other ways to do this outside of school are using meetup.com, for example. Before I started CFI, I used meetup.com to host a financial modeling meetup. As the host of the meetup, I met many interesting people in the financial modeling community. As it turned out, one of the people that came to those networking events was someone that we later hired at CFI and is now one of our top instructors at CFI. By simply using something like meetup.com, which cost almost nothing, and with a simple investment of time, I could meet people and then work with those people later in the real world as an entrepreneur. As a result, investing in your network is critical. Sometimes who you know is more important than what you know, but it’s not always the case. If you think of skills and networking, it’s what you know with skills and who you know with networking. Thus, the first two investments are primarily investments in time.

Investing in real estate

The third most important investment you can make is investing in real estate. The great thing about investing in real estate is that you can get a mortgage and use leverage. If you want to buy a half-million-dollar property, you may only need 50,000 or $100,000 to make the down payment for that. Even though that is still a lot of money, saving up $50,000 over a few years knowing that you want to get into real estate becomes a strong motivating factor.

Personally speaking, I was a little bit late to investing in real estate. I didn’t own my first property until I was in my 30s, and with hindsight, I wish that I bought my first property in my 20s, that I had saved a bit more money, and purchased whatever property I could afford. The nice thing about buying a property is that you can rent it out. It doesn’t just have to be a place that you want to live in. You can use the income stream from that rent to pay down the mortgage by renting it out.

Once you have a property that you’ve paid down, you can borrow against it again and buy another. This is the method that people use to make a lot of money in real estate by layering properties, using leverage and rental income streams on those properties to build a massive portfolio of assets. Once you have that up and running, the rental income that spits out from those properties can support your lifestyle. It can fund your business, and it can do all sorts of things. Therefore, I highly recommend getting into real estate as early as you can.

Investing in stocks

The fourth most significant investment to make in your 20s is to start building up a stock portfolio by setting up an online trading account and keeping it simple with index funds. By buying index funds, you’re buying exposure to the broader stock market like the S&P 500, where you’ve got all the top 500 companies. These days, it is primarily tech stocks, but if you think of Amazon, Apple, Facebook, Google, and so on, they are all part of the S&P 500. You need a minimal amount to start investing, and you only need a few hundred dollars to get going with an online trading account. You can begin by buying an index fund, where you set it and forget it and let it grow for you over time. If the stock market returns somewhere around 8 to 10% a year, and you start investing early in your 20s, you can have a lot of money set inside later in life.

The other thing you can do with stock market investing is buy dividend funds, dividend funds that pay a yield or return. If a stock or an index fund is paying you 3% to 5% and you have 100,000 invested, you’re going to get $5000 a year in terms of the dividends pay off. Now, that may not sound like a lot of money, but it becomes a significant source of passive income for you when you have an extensive portfolio. The earlier that you can start, the more you’ll have later. Although it’s taken a long time to get to where I am today, my passive investment income is now over a million dollars a year. When I add together my real estate and my stock portfolio, I generate more than a million dollars that happen on its own. Through smart investing, the skills and the networks that I’ve built have enabled me to earn that money and grow that passive income stream.

Investing in a side hustle

Finally, the fifth most important investment that I highly recommend that you start as early as possible is some side hustle or start-up idea. It’s good to get your feet wet as early as possible being an entrepreneur and running your own company, even if initially you’re a solopreneur or someone working on your own with a skill that you can monetize. Just having a skill you can monetize makes you an entrepreneur. You can use a platform like Fiverr or Upwork, and you can essentially sell your time initially. It is a great way to start to build a book of clients.

Eventually, you can branch out to have other people working for you, and before you know it, you’re employing others, and you’re a business. It just starts small. Don’t worry about inventing the next Airbnb or the next Facebook. Hopefully, you can do that someday, but in the meantime, start small, make the first move, do whatever you can do to generate some income that was not given to you by your employer. Once you figure out how to do that and get a taste for it, there’s no going back, and the earlier you start, the better equipped you’ll be to grow and scale it when you’re older.

In conclusion

If we take all five of these together, starting with investing time into building your skillset, becoming good at something, becoming an expert at something, that’s critical. Then you have your network, and you can use it to amplify your skills; this is how you will have a broad reach. At the same time, you’re investing in assets other than yourself that can pay off, that starts with real estate where you can use leverage to get going with a smaller amount of money than would be required if you were to buy a house without a mortgage. You can also set up multiple income streams by renting the place out, having a roommate, just getting in early is the key. Then you can also amplify that by having passive investments in the stock market with a brokerage account, you can have index funds that start to grow and compound or pay dividend income towards you. As I previously mentioned, I’ve set up an extensive portfolio of stocks and real estate that are enough to sustain me with just passive income alone. The last rule is that you want to start a side hustle or be an entrepreneur as early as you can; it’s like a muscle that you have to build over time, the sooner you start, the more natural and the stronger you’ll be at it when you’re older.

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