The Most Important Investments for Clients in Their 20s

This is the latest in a new series of columns about portfolio strategies, financial planning and asset management.

Ritholtz Wealth Management CEO Josh Brown says people in their 20s should focus on their career paths, and on enjoying their youth, rather than spending time worrying about asset allocation.

Investing in healthy career advancement will matter more to their future wealth than deciding on specific portfolio allocations in early adulthood, he suggested, noting in a recent blog post that at age 47, his own 401(k) exclusively comprises a global stock portfolio.

“I take maximum risk for maximum reward and I spend the extra time I have from not tinkering by taking the sort of actions that will enable me to earn more,” he wrote.

Twenty-somethings should focus on degrees, professional certifications and good employers, Brown advises, and remember to enjoy life experiences like dating and parties while they can.

“They need not spend hours poring over a mutual fund prospectus, counting basis points or reshuffling their financial assets,” he wrote. “The stock market stuff won’t matter financially. The career path will.”

I asked financial advisors recently whether they share this view — and what their biggest piece of advice was for people in their 20s. Many advisors, responding in emails, seemed to share Brown’s view on emphasizing career path, to varying degrees, and offered their own tips for young adults, including the wide view that saving and investing early are vital as well.

“Focusing on their careers and investing are both extremely important for 20-somethings. So much of your career pathway is secured in your 20s. Your negotiation for both your first salary and benefits is the first step on the ladder that you’ll climb. And so is investing,” advisor Sally Boyle of SJ Boyle Wealth Planning in New Hampshire told me.

“Those first invested dollars serve as the basis for future compound interest additions. And compound interest is your friend,” she said. “Investing in your 20′s is not complicated. There is no need to invest in anything other than equities, because you have years to the time when you need the funds so you can outwait any volatility. So determine a comfortable allocation to equity ETFs, regularly deposit, set it and forget it!”

Jen Swindler, owner and advisor at Money Illustrated, also noted the power of long-term investing.

“While people in their 20s likely don’t need to get highly granular and obsessive about allocation strategies, investing systematically and consistently into a diversified portfolio from a young age is one of the best moves they can make for their long-term success,” Swindler wrote.

“Investing from a younger age also helps reduce fear of investing later in life; in my experience with clients, the longer someone can see the impact of investing on their own wealth, the more they tend to be able to ride out market volatility when it occurs,” she added.

Avoid the Traps

Brown’s comment implies it doesn’t matter what decisions young people make with investing at this state of their lives, “ignoring the very real impact of social media on people in their 20s, including FOMO, crypto hype and meme stocks,” making them more likely to put disproportionate amounts of money into trending investments rather than a diversified portfolio, said Swindler.

She suggests young people start investing as early as they can, ideally in a 401(k) at least up to any employer match, if possible, increasing contributions as income rises.

Indeed, most young investors haven’t developed the investing knowledge or behavioral discipline to navigate the markets without falling into common traps, wrote Vermillion Private Wealth owner James Vermillion. FOMO, overconfidence and short-term thinking can turn what should be a long-term strategy into something resembling gambling, he said.

“My biggest advice for people in their 20s is to adopt a continuous learning mindset — not just in your career and finances, but in all aspects of life,” he wrote. ”Focus on building skills that will compound over time, like writing, critical thinking and communication — evergreen abilities that remain valuable regardless of changes in the job market.”

Eustache Clerveaux, financial planner and senior analyst at Hudson Financial Group, agrees with focusing on investments beyond the financial markets.

Enjoy Youthful Energy

John “Jack” Bowman, financial advisor with Zero Day Capital, agrees with the notion that young adults should enjoy life even as they take advantage of early investing.

“My advice to people in their 20s is to prioritize experiences so they can enjoy them as thoroughly as possible now while they are in the highest energy period of their lives,” Bowman said.

“Investments are important, and so is saving for retirement. Don’t put yourself in a financial hole or take out debt to go on vacations or concerts, but don’t skip those things because you’re worried you’ll lose out on a bit of compound interest.”

Compounding, in Career and Savings

“In your 20s, your career trajectory can have a massive impact on your long-term wealth,” wrote Marcel Miu, founder and lead wealth planner at Simplify Wealth Planning. “Building skills, gaining experience and expanding your professional network often lead to higher earnings later, which in turn increases your capacity to invest down the road.

“My biggest piece of advice for people in their 20s: Career focus doesn’t mean neglecting basic financial habits. Prioritize learning and implementing the right habits when you’re young. Saving consistently and learning about investing is crucial. The habits and knowledge you build now will serve as the foundation for the rest of your life.”

Rebecca Conner, founder at SeedSafe Financial, a virtual wealth management practice working with equity compensated professionals, agrees that career is the biggest investment people can make in their 20s, but it’s not the only one.

“We work with some of our clients’ children, and when they go into tech we find they may start at $150,000+ in salary,” she wrote. “For these clients, we believe starting savings young while they are in a booming industry can mean all the difference in future career flexibility.”

Eric Papa, senior associate advisor at RS Crum, suggested people in their 20s start funding a Roth IRA. “It is the easiest way to retire as a tax-free millionaire,” he wrote, noting a 20-year-old would have to save only $290 a month to reach the “two-comma club” by age 65.

Advisor Andrew Van Alstyne of Fiduciary Financial Advisors noted the importance of growth while also suggesting those in their 20s aim to invest 5-10% of their income into low-fee index ETFs.

Don’t Make This Mistake

Jon McCardle, president, Summit Financial Advisors, noted the financial gap that occurs when people delay saving.

“One of the most common regrets we hear from clients in their 40s and 50s is that they wish they had started saving earlier,” he wrote. Many realize, later in life, that they haven’t saved enough to retire comfortably, leading to a scramble to make up for lost time.”

“The goal is to prioritize both career and saving without getting bogged down in the complexities of investment choices at this early stage,” McCardle wrote. “Selecting a simple investment vehicle, like a mutual fund, ETF, or a target-date fund, allows you to focus on your career while building your savings.”