How to Create an Investment Portfolio in Your Early 20s
Just because you're young doesn't mean you have to be financially unsophisticated. Creating an investment portfolio early in your life will reap great rewards later on.
- Difficulty:
- Challenging
Instructions
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1
Set goals. If your objective is retirement, calculate how much you'll need vs. how much income you'll have (pension plan, Social Security) when you retire.
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Choose a strategy that will enable you to meet your goals. Brokers and others offer conflicting advice on the best way to allocate assets (or choose a mixed approach to investment), so talk to financial advisors, read financial newspapers and magazines, and visit financial Web sites. In short, do some research.
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3
Pay yourself first. Set aside 10 percent of your annual income and invest it.
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Take full advantage of your employer's 401(k) plan, investing as much as you can in it.
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Invest in an Individual Retirement Account or Keogh plan if you're eligible.
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Put your money in conservative investments at first; for example, mutual funds that buy a variety of blue-chip stocks. After you have a solid foundation, you can choose higher-risk investments.
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Diversify. Buy a variety of investments; for example, if you're investing in mutual funds, you might put 30 percent of your money in growth funds, 30 percent in aggressive growth funds, 20 percent in tax-exempt bond funds and 10 percent in money-market, checking and savings accounts.
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Buy what you know. If you go beyond mutual funds and decide to buy individual stocks, invest in local companies that you know something about.
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Tips & Warnings
Check out mutual funds. They are run by professionals and hold a diversified portfolio of stocks and other securities.
