15 Best Investments for Young Adults

Young adults have more ways to invest and grow their income than ever thanks to the availability of digital tools and versatile investment solutions. Yet, there’s still a lack of action in many cases. According to Annuity.org, 75 percent of teens in the U.S. don’t have personal financial literacy skills (which they ain’t gonna pick up in school either) and, 23 percent of adults between the ages of 18 and 29 have some credit card debt that’s more than 90 days late.  

Recognizing just how challenging it can be for young adults to create a strong financial plan, we’ve compiled a list of the best investment opportunities for young adults. Whether you’re a parent looking for a way to get your child to start saving or you want to help yourself to build a strong financial future, these are the best tools and methods to make it possible.

And if you’re freaking out about wrapping your head around this stuff, investment for young adults does not have to be complicated either.

Methodology

To determine which were the best long-term investments for young adults or where they could put away some money now and watch it grow, we looked at a lot of options. Sure, the average savings account is an option, but in reality, that’s probably the least effective strategy out there thanks to lower interest rates. Yet, there are some pretty awesome tools that can make it easier to invest.

We looked at the details here – everything from exchange-traded funds to high-yield savings accounts to determine which offered the best solutions for young adults based on their limited knowledge, overall investment amounts (not all young adults have a huge amount to put away), and the overall return on these. Here’s what we’ve found and what you want to consider when you are ready to invest money.

Young investors have a lot of opportunities. In our recommendations, I really looked at a ton of options – and realized that, when I was younger, I really missed the mark. Some of these opportunities are quite lucrative and should be considered even if you have a pile of student loan debt and a limited paycheck.

Best Investments for Young Adults

1. High Yield Savings Accounts

Yes, we just made a note about the lack of savings accounts not being, well, ideal, but the fact is, there are some pretty great solutions out there that can be exceptional in the way of a high-yield savings account or HYSA.

It is one of the most basic options available. It’s so simple that anyone including a teen with no experience can use it. Many financial institutions offer them, and they tend to have some key features.

• They pay a higher percentage of interest than your average account.
• You can find excellent options that are affordable (not everything has a huge fee schedule)
• You should keep those funds in the account long-term and not use them for day-to-day needs (the point is for them to stay in the account and grow)
• The Federal Deposit Insurance Corporation (FDIC) protects balances in these accounts up to $250,000.
• It’s easy. You can deposit as much as you can on an ongoing basis and the interest rate is applied. I highly recommend comparing several companies to find the best overall solution paying the most with the lowest fees.

This type of account is best for simple investing. You will not earn a huge amount, but it is safe, easy, and a good first step in putting money away.

See Related: Neobank vs Digital Bank: What’s the Difference?

2. 401k and IRAs

Young investors definitely should be saving for retirement. When you begin investing in retirement accounts now at a young age, the value grows by leaps and bounds over your lifetime.

Retirement accounts are tax-advantaged accounts, which means the Internal Revenue Service (IRS) recognizes these accounts as designed for future needs. As a result, they can help to reduce what you are paying in taxes on these funds.

There are numerous types of retirement accounts. If you decide to begin investing and you’re already working with a company that offers 401k accounts, choose this avenue. Your employer plans are likely to offer a matching contribution, in which your employer will put some funds into your account to match your contributions.

That’s a sizable tool. The best 401k investments for young investors are those from your employer because of these features and the fact that your employer is paying for the administration fees and other service costs associated with the retirement account.

If you do not have an employer-sponsored plan yet, that is okay. You can open your own retirement account. An individual retirement account or IRA is the most common type.

You can open these online through an investment brokerage as well as through most banks. The key to remember here is that these are long-term investments – put the money into them and let them grow for years to come. Be sure you feel comfortable putting the money aside and no longer having very much access to it.

See Related: How to Invest in Private Equity: A Step-by-Step

3. Check Out Index Funds

Index funds are one way to tap into the stock market. For many young investors, this is an attractive and desirable goal. If you like to have some fun and want to try in stocks, start here. Just remember – stock markets always carry some risk and without a lot of experience or the help of a pro, it is going to be harder to make some significant money. That’s okay, they’re still worth it!

So, what is an index fund and how can it help you?

There’s no doubt that the stock market is the place to invest your money, but it can be hard to know how to value stocks or to know when you have a hot stock opportunity or when you’re not going to have a chance of success. Because there is so much volatility in the stock market, index funds work well because they allow you to diversify your portfolio. That means, even if one stock does poorly, you may have others in your portfolio that can do well.

Index funds are a prepacked bundle of stocks. There are many, and some track the S&P 500, which is considered one of the best options because it is representative of the U.S. economy as a whole.  You will find they offer a range of funds including mutual funds.

With index funds, you do not get to pick and choose the underlying stocks or mutual funds. Rather, a team of investors and financial advisors manages these funds for all people who invest in them. That can help you to increase your overall outcome because let’s be honest, most people do not have a lot of time to spend researching investments and monitoring the ebbs and flows of the stock market.

See Related: Best Climate Change Mutual Funds

4. Use Robinhood

Robinhood is a stock trading and investment app that is super easy to use and offers the ability to invest as much or as little as you like (with a whole lot less risk involved). You do not need to work with an investment brokerage to use it. Rather, you just download the account and start plugging away.

As a commission-free stock trading tool, it is very affordable to use. That means you can make investments in companies that you love and want to support without having to worry about the costs associated with the process.  Robinhood has some exceptional benefits such s:

• It is a very easy-to-use app. Download it, deposit however much you want to invest into it, and then pick and choose the stocks to invest in.
• You do not need a lot of money to start investing. This discount brokerage does all of the hard work for you while allowing you to invest where you want.
• You can use it for exchange-traded funds as well as cryptocurrencies. It is very versatile – invest in what works for you, move your money as you like, and watch it grow. You can use it for stocks, ETFs, and options, as well as cryptocurrency trades.
• You can trade as often as you like. For those who want to capitalize on fast trading and not having to wait for their trading investor to help them, Robinhood works very well.
• It is not to be confused with a traditional brokerage account, as they do not provide advice or guidance to you. If you want more advanced planning, turn to a professional for those services.

I believe Robinhood is a solid choice. Good investments for young adults like this are wise because they allow you to really see how the stock market works, test out your risk tolerance, and still have some fun with it.

See Related: How to Create an Investment Thesis [Step-By-Step Guide]

5. Mutual Funds and Exchanged Traded Funds

Once you get a bit more experience and are ready to start investing a bit more seriously, you’ll do well with mutual funds and exchange-traded funds. These are much like index funds in that they are a prepacked set of investments you will be putting your money into, but there are some important differences.

Mutual funds are also managed by a single professional investor. There are some fees for using them. However, this method allows you to contribute to the purchase of stocks and bonds by pooling your money with other investors.

That makes it easier for you to invest but also ensures more diversification in the investments selected. You also will find that having a professional money manager makes a big difference in the outcome. A mutual fund is a solid choice.

Exchanged traded funds, or ETFs, are a bit different. ETFs also track an index, like index funds. These are passively managed accounts.

The ups and downs of the ETFs match the rise and fall of that index. These tend to have lower fees than mutual funds, which makes them more accessible to many of today’s young investors. ETFs track different indexes. Choose those that fit your interest and have the underlying securities you are most interested in purchasing.

See Related: Best ESG ETFs to Invest in Today (2022 Guide)

6. Real Estate

You’re young; why do you want to invest in real estate? You’re not ready to commit to buying a home. Yes, we always hear that real estate is a solid investment, and for someone that is young, buying now really does make sense.

Now, to be clear, you do not have to buy your dream home or an investment property in the heart of New York City to do well. Rather, buying a home as soon as possible just makes good sense. There is no fully risk-free investment, but real estate is one of the safest long-term options.

You do have to think about the buy versus rent debate – there are advantages to having someone else manage your property for you especially when you are young and unsettled. However, there are some exceptional benefits to buying a home when you are young that you cannot overlook. You want to ensure real estate is a part of your investment portfolio.

Why real estate? There are a few big reasons you want to buy into real estate for one of your first purchases.

• If you are paying rent right now, but have enough money tucked away for a down payment and to manage the higher costs of owning a home, buy a home. Even as a young investor, you will find this makes the most sense long term.
• Home values rise over time. That means that if you buy a home now, your living expenses and ownership will continue for years to come. As that home increases in value, you are building equity, something that is very important for an investor. Real estate is one of the safest, long-term options out there.
• Your initial investment will grow in time through equity building. However, what you also gain is the ability to tap into that equity down the line for other needs. That gives you lots of time to watch your assets and estate increase in value.
• Over time, this could turn into investment property for you as well. Once you are ready to buy your dream home, you can do so with ease – using the equity from this home if you need to. Then, you can maintain that initial investment purchase and rent it, creating a steady income for yourself over your lifetime.

You do have to pay taxes and you need to consider your overall personal financial situation to determine if you are ready to invest in real estate. However, doing so will pay off for many people over time.

When it comes to the best investments for young adults, real estate ranks high. However, you have to be ready for that commitment.

See Related: Best Banks for Low-Income Earners

7. Pay Off Debt

That may not seem like a type of investment opportunity, but before you start investing, you have to get your debt under control. When you do, you will be able to put more of your money towards your savings accounts as well as that mutual fund or retirement savings you are focusing on. Why does debt matter?

Take into consideration what you are paying in interest payments. Let’s say you have just $100 in debt. If your annual percentage rate (APR) is 25 percent, that means that, over the course of the year, if you spend $100 on your account, you will owe $125.

Now, what happens if you have $1000 in debt at the same rate? You now owe $250 extra dollars in interest. That’s money that you could be putting towards your investment accounts or into a typical savings account to see the value rise over time.

Here are some factors to keep in mind:

• Determine how much debt you have on credit cards and other unsecured debts. Determine the interest rate on them next. Work to pay as much as possible towards the highest interest rate debt first. Credit card interest can be devastating to you otherwise.
• Work on student loan debt. If these are lower interest rate debts, put only what you need to towards them until you pay off other debts.
• Work to pay down your debt as much as possible on a consistent basis. Keep in mind that that means creating a budget, sticking to it, and putting money towards big debts first. Also, don’t use credit cards for your expenses. Move to a more cash-based system (debit cards are just fine). That way, you are working on paying down your debt without increasing it at the same time.

You will find that, as you work to pay down your debt, you will then have more money to put into other options like retirement savings.

PRO tip – set up an emergency fund

An emergency fund is $1000 or more that you put into a basic savings account. It is there for just what it sounds like, unplanned purchases. Use this money when the car breaks down and you do not have the funds to make repairs. Having this in place helps you to avoid needing to turn to credit cards for more money in an emergency.

See Related: How to Save Money When You Are Broke

8. Consider M1 Finance

M1 Finance is a tech company that offers a wide range of services and financial products for you. You will find it is the ideal robo-investor for many people, including when it comes to investing for young adults. It provides you with a lot of great features including digital checking accounts, lines of credit that can fit your lifestyle, and brokerage accounts.

It is quite an interesting tool because it blends investment opportunities with spending tools, which is a good option for an individual investor who has a bit more experience (this should not be the first step you take into investing if you are unable or unsure about creating your own customized portfolio).

With it, you can choose from 60 “pies” or pre-built portfolios to invest in. You can also build your own strategy if you like. It allows for good diversification (that you can control more freely than with other apps and tools) and it gives you a lot of tools and support along the way.

There are no fees overall and you can get started with as little as $100. You can invest in individual stocks, ETFs, real estate investment trusts (REITs), and more. It also allows you to plan for retirement.

There are no humans to manage the process, rather it is all done through robo-advising. It’s a super flexible way to put money where you want to when you need more control.

See Related: Most Unethical Banks You Need to Avoid

9. Certificate of Deposit

A certificate of deposit, or CD, is another type of tool and may be ideal as an investment for young adults. It creates a way for you to put a set amount of money away for a period of time. During that time, the funds grow based on the expected interest rate. Once that time is complete, you earn what was planned. That sounds easy, right?

A CD really is a simple tool. You do not have to do anything with it to see results. It is like a savings account in the way it works.

You put funds into it, those funds grow over time, and you earn interest. The difference is that you do not have the same access to those funds as you would if they were in your traditional savings account. That means that as long as you keep the money in the CD for the set amount of time – which is usually months or years, the CD will mature. When that happens, you get the amount you put in back plus the interest that grew.

These are FDIC-protected accounts, which means you really do not have any risk in putting your money into them. The biggest downfall is your money is locked up for that period of time. They can be one component of your financial planning, but they are typically not going to be the only option that you want to invest in.

See Related: How to Save Money & Go Green; a Step-by-Step Guide

10. Personal Capital

As you learn how to maximize your investments for young adults, consider the use of Personal Capital. No, we are not talking about the money in your account, but this really easy-to-use online financial advisor and wealth management company.

One of the biggest concerns many of today’s young investors have is creating goals. It is not just about using stocks or buying into mutual funds.

You need to have a focus on financial planning that brings together all of your goals and creates a straightforward solution for you. Personal Capital can help you with this.

It is a set of free financial tools that anyone can use. With the help of highly skilled financial advisors, you can make the most out of just about any money you put into your savings goals and long-term income projects. What’s more, there are a ton of options here to use (if you love to use digital tools, you will love all of the features on these accounts.

For wealth management, you can work on developing your personal financial strategy, create 401ks (and get help with managing them), and create other investment methods that fit your needs. Also, did you know you can tailor your investments to socially responsible investing?

In addition to this, Personal Capital provides lots of tools to use:

• Net worth tools
• Retirement planning
• Savings planning
• Fee analyzer
• Investment checkup
• Lots of financial calculators

It’s quite a robust tool. Use it to help support all of your decisions and financial goals.

11. Bonds

Bonds are another low-risk method of investing. They do pay off in the long term (as long as you are patient) and for many people, they are a solid choice as a first step. Bonds are like CDs in that you put money into them that pays off down the road.

Bonds help businesses and cities to borrow the money they need to grow while paying you some interest. You are lending these organizations money and they pay it back to you with interest.

You will not get a lot of money from bonds. However, they can be a good option for those who want to keep some risks lower. You can even buy bonds that are a part of a 401k plan or mutual fund.

See Related: How to Buy Green Bonds (Step-by-Step Guide)

12. Real Estate Investment Trusts

We talked about buying a home as a good way to invest in real estate. Another option is to use a REIT. This is an opportunity to make more of a large-scale investment in real estate.

You do not actually buy property here, but rather put money into an investment that then invests into real estate. Confused yet? Let me explain.

Many of the best REITs are registered with the U.S. Securities and Exchange Commission. You will find they are traded on the stock market.

There are others that are not publicly traded, but those tend to have more risk to them. You can add these investments to your portfolio easily and get into and out of them pretty quickly if you want to do so.

13. Betterment

All of the information and guidance provided here is just a focus on ways you can invest. For many young adults, though, getting financial literacy and developing skills in managing your personal finances really should be the first step. Betterment is a tool that may be able to help you do that.

Betterment is designed to allow you to put money into stocks and mutual funds and works as an online brokerage account. There are a lot of options here for investment. Yet, the platform has a few key benefits.

• You can learn as you go. The educational resources and tools here can really provide you with a foundation for growing your investment knowledge.
• You can invest easily and without a lot of money. This is a great tool because, though it has an annual fee, it is very competitively priced overall.
• It is easy to use. I really found that anyone without any type of advanced education can do well with this type of account.

14. Work with a Financial Advisor

While a lot of the steps and tips offered so far are focused on do-it-yourself investing, at a young age and with some money in your pocket, it can be very helpful to pursue the help of a licensed financial advisor as you start investing. There are many reasons for this.

When you work with a team like this, you gain access to more investment options and, in many ways, the best investments for you. Your financial advisor can help as they provide insight, give you some guidance on how much risk to take based on your personal institution, and provide you with lots of informative guidance.

They can tell you if that real estate investment trust is the best for you or which types of savings accounts best fit your long-term goals. They can help you save for that initial deposit on your first home and help you to make the most out of compounding interest!

Their guidance and support are phenomenal and will benefit you throughout your investing career.

See Related: Are Robo-Advisors Worth It? Here’s What to Know

15. Crypto

Many young investors want to focus here, and I get that. It is new and exciting and the fear of missing out is a big concern. You can and should invest in crypto, but don’t put every bit of your money into these accounts especially if you are not doing so with the guidance of a financial advisor.

As rather new investment strategies, they remain very unproven in the long term. There are also plenty of situations where people have found themselves simply unable to overcome financial devastation when they put too much money into the wrong currency and it’s gone due to a scam.

Crypto can be an excellent choice for some. It allows you to put money into these currencies and generate cash for yourself. They are much different than stocks, though, and carry higher risk.

Go this route carefully working with one of the robo advisors and tools listed here. You can also focus on diversification to help lessen the blow of any type of concerns that do arise.

By diversifying, you are not putting all of your money into one account or type of account. That can help to ensure you are able to invest in crypto and still have a lot of good happening even when things get more difficult.  

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