The earlier you start investing, the better your financial outcome will be. This is because investment earnings grow exponentially with time. However, there is more than one way to invest. Mainly, you can choose a conservative or an aggressive approach.
Conservative investing typically provides constant, stable growth over time, but the returns aren’t as high as they could be. Conversely, aggressive investing means putting your money into high-risk, high-reward assets that have the potential for significant returns. However, these investments are also more volatile, meaning there’s less security in keeping what you earn.
Both methods almost always result in financial growth over time, but aggressive investment strategies might offer more benefits for you if you’re in your 20s. Read on to explore reasons why higher-risk investing could be the right move for young adults.
Time Is Your Greatest Ally
Aggressive investment portfolios are usually more volatile, meaning you might often see your money shoot to the top of the charts and then crash the following month. It can be scary watching your account numbers drop, and this understandably holds many people back from aggressive strategies.
However, when you’re young, time is on your side. It’s important to not make investment decisions based on fearful emotions, as this is one of the common investment mistakes to avoid.
After all, the data don’t back up this fear. When you start your investment journey in your 20s, you have decades ahead of you to ride out the market’s ups and downs. Furthermore, historical data show that over the long term, stock markets rise overall despite periodic downturns. In fact, aggressive portfolios usually outpace conservative ones, despite experiencing lower lows.
This means that the earlier you start investing, the less impactful temporary crashes are. Odds are that your portfolio will recover and emerge stronger than a conservative portfolio would.
It’s Emotionally Easier To Invest Aggressively When Young
One of the questions you should ask before investing is how much risk you’re willing to take on. Even if you experience anxiety about risky, aggressive investment, you’re still more emotionally advantaged than older investors. You’re likely at a point in your life where you can afford to take on more financial risk without jeopardizing your future plans or obligations. You likely don’t have the responsibility of a mortgage, college savings for kids, or impending retirement to worry about, which makes you mentally and emotionally equipped to handle volatility. If the market dips and your portfolio takes a hit, it won’t be the end of the world because you have plenty of time to recover.
You Won’t Need the Money Soon
Another compelling reason to invest aggressively in your 20s is that you probably don’t need immediate access to the money you’re investing. You likely won’t need to touch the funds you allocate to aggressive investments for decades, which aligns perfectly with a long-term growth mindset. Conversely, older investors are less likely to be able to afford sudden losses, especially as they near retirement. The less you need your money, the freer you are to capitalize on the long-term benefits of aggressive investing.
There you have it—a few of the main benefits of aggressive investment strategies in your 20s. None of this is to say that an aggressive portfolio is right for you. It is simply to provide you with some insight that you can research and bring up with a financial advisor for personalized advice. Best of luck as you navigate the world of investing!
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