Investment tips in your 20s
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Investment tips in your 20s

Updated
13 Sep
2024
published
18 Jul
2024

While you might be just starting out with your career in your 20s, some of you might already start thinking about longer-term wealth goals, such as wedding, preparing downpayment for your first home, or allowances to support elderly parents’ retirement. 

How should you start thinking about getting started with investing in your 20s? Here are 4 tips when it comes to investing in your 20s, as a Gen Z, can embark on your journey with confidence.

Tip 1: Start early, start now!

With little capital, you might think it's pointless to start investing. After all, how much can a small amount really accrue to… right? However, while this is a common mindset, it is important to remember that wealth building is a steady process that occurs over a long-term horizon. 

Even with a small amount of money, you still have the best asset that any investor can have: time. With a long runway ahead of you, the small sums you invest will eventually accrue to significant outcomes in the long run due to compound interest

Let’s put this in perspective:

  • Scenario A: At age 20, you invest $100 into an index fund every month for 30 years. Receiving an average return of 8% p.a.. Thanks to the power of compound interest, you will accumulate about $141,000 when you turn 50.
  • Scenario B: Assume the same amount is invested monthly into an index fund, but only started investing only at age 30. As a result of this delay, you will have just around $57,000 when you turn 50.

This 10-year delay caused you close to 2.5x times the difference!

Just like a snowball rolling down a mountain, a longer pathway means a higher chance of accumulating more snow over time. The sooner you start investing, the more impactful compounding becomes, that’s why Albert Einstein famously called it the “8th wonder of the world”. 

There are also intangible benefits in investing early. By starting early, whether you get positive or negative returns, you still get the chance to dip your toes in investing and learn to manage your emotions and learn from any mistakes you might have made in the future.

What then can I invest in, as a beginner with little money?

A good starting point for budding investors with limited capital would likely be a low-cost globally diversified portfolio. While index funds may not sound exciting at first mention, historical data has shown that buying such funds is actually one of the most successful investment approaches. Even investment titan Warren Buffett has personally endorsed index funds for wealth building. 

"By periodically investing in an index fund, the know-nothing investors can actually outperform most investment professionals." – Warren Buffett

Index funds are particularly attractive if you do not have large amounts of money as they are a low-cost route to diversification.

We have a suite of index funds for you to choose on our Fund Smart platform such as the Global Equity Index Fund and US Equity Index Fund offered by HSBC Asset Management.  

For those looking for a simple way to build a low-cost diversified portfolio and have it managed by expertises, consider our Endowus Flagship Portfolios, with over 10,000 securities as underlying, the total expense ratio of the underlying funds ranges only from  0.21% to 0.35% p.a.. Flagship Portfolios are offer as Discretionary Portfolio Management (DPM), which is an investment management service on a framework guided by SFC regulations, where clients grant the DPM portfolio manager authority to make buy-and-sell decisions on their behalf.

Read more: Introduction Endowus Flagship Portfolios: a core strategy for your financial goals

Read more on why they can potentially be more tax efficient vehicles than US-listed ETFs for Hong Kong investors.

Tip 2: Have an emergency fund

Here’s a reality check: all investments carry risk. While it may be tempting to pour all your savings into the financial markets to accelerate the process of wealth building, there is the inherent risk of losing everything.  

So then how much of your savings should you really invest?

The specific answer to this question depends on many factors: your income level, the current amount of savings, and whether you have built an emergency fund

Having a reservoir of savings — generally equal to about 3 to 6 months of your monthly expenses — serves as a safety net to fall back on in the event of job loss, financial distress, or any unforeseen expenses.

Note that investments should only start after you have set up an emergency fund. Therefore, building a secure foundation with your emergency fund should be a top priority. Only then can you consider investing the remaining monetary inflows. 

We can begin building your emergency fund from your internships, part-time jobs, or even a fraction of your pocket money.   Depending on your liquidity requirement, you may consider building the emergency fund by simply put in saving account in a bank, doing monthly time deposits or , may consider parking these funds in low risk, liquid options such as money market funds

Tip 3: Don't speculate on 1 or 2 single name stocks

The Retail Investor Study 2023 by the Hong Kong Investor and Financial Education Council showed that stocks are the most popular investment product for investors aged 19 to 28.

While it may be tempting to follow the crowd and dive straight into buying individual stocks, such as Nvidia, which has dominated headlines and surely conversations among drinks. 

Those of us who are older remember, there was once a time China tech stocks such as Tencent and Alibaba were stock darlings in Hong Kong. But in recent years, these stocks have dramatically fallen in value due to a slowdown in the Chinese economy and changes in the regulatory environment on China's big techs since 2021.

More importantly, stock picking requires significant time and effort — analysing financial statements, tracking company development and stock prices, in-depth research into industry peers etc.

You might thus end up selecting stocks based on fads or home bias affiliation. But, historically, doing so has been an unreliable path to reaping resilient returns, and can lead to huge losses for concentrated investments. 

Tip 4: Instead of DIY investing, get professional advice

We are rarely hands-on when it comes to other things in our lives. Think about it: we understand the value of hiring a professional plumber, when we've never installed the plumbing system ourselves. Similarly, why no seek out for professional help when it comes to investing?

While DIY investing gives you full control of your investments, it might not work in your favour as a new investor with little knowledge. There are now easy options to obtain help from professionals, such as online wealth advisory platform, Endowus at low, fair fees.

A trusted financial advisor can help shoulder the responsibilities of tracking your investments, and keeping up with the dynamic financial markets. As a result, more time can be spent on other important things in life, whether it’s learning a new skill or travelling to a new destination.

Learn more about our model portfolios, the Endowus Core and Satellite Portfolios.

<medium-btn-link>Start investing now <medium-btn-link>

Investing can look daunting at times, but starting off on the right foot can greatly simplify the process.

Education is essential — equip yourself with the wide-range of resources available, and strive to make well-informed decisions.

Ultimately, remember that personal finance is, in essence, personal. Don’t let other people’s stories of their investment conquests easily influence what you choose to do. Because for every success story, there are many tragic ones.

Click here to get started with your Endowus journey in just a few minutes, or feel free to schedule a 1-on-1 free consultation with our licensed client advisors if you are in doubt.

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Risk Warnings

Investment involves risk. Past performance is not an indicator nor a guarantee of future performance or returns. Projected performance or returns is not guaranteed to materialise. The value of investments and the income from them can go down as well as up, and you may not get the full amount you invested. Rates of exchange may cause the value of investments to go up or down. Individual stock performance does not represent the return of a fund. 

Risk related to discretionary management . As Flagship Portfolios are provided under discretionary services, Endowus will manage the assets under the portfolio subject to compliance with the terms and conditions of the DPM Services Agreement and on a fully discretionary basis; you will not have any role or right to make investment decisions, except for making contributions or withdrawals from the portfolio; it would not be mandatory for Endowus to provide the underlying fund prospectuses or other fund information to you for each and every investment decision made on behalf of you.  You should exercise caution before investing in discretionary managed portfolios. 

Flagship Portfolio may contain professional-investors only fund(s) and/or “Complex Product”.  In general, Professional-investors only funds are funds that have not been authorised, nor have the offering documents been reviewed by the SFC.  “Complex Products” (as defined by the Securities and Futures Commission, the “SFC”) refer to investment products (e.g. funds) whose terms, features and risks are not reasonably likely to be understood by retail investors because of their complex structures.  Professional-investor only funds and Complex Product in general may have higher risk than other retail and non-complex products.  Past performance is not indicative of future performance. All investments involve risks (including the possibility of loss of the capital invested) and the price of fund units may go up as well as down. This fund may invest in financial derivatives which may involve additional risks (e.g. market, counterparty, liquidity, leverage and volatility risks) and lead to higher volatility. In adverse situations, the fund may suffer significant losses. This fund is not principal protected. In the worst-case scenario, you may lose the entire invested amount. Do not invest in a complex product unless you understand and are willing to assume the risks associated with it, including (in some cases) the risk that you may lose more than the invested amount. Please refer to the “Important Information About Funds” for details of the risks involved.  If you are in any doubt, you should clarify with us or seek independent professional advice.

General risk warnings relating to collective investment schemes 

Before making an investment decision, you are reminded to refer to the relevant prospectus/ offering document for specific risk considerations and related fees and charges. Funds are not a bank deposit and not capital guaranteed, and is subject to investment risks, including the possible loss of the principal amount invested. Some of the funds also involve derivatives. Do not invest in them unless you fully understand and are willing to assume the risks associated with them.

Opinions

Whilst Endowus HK Limited (“Endowus”) has tried to provide accurate and timely information, there may be inadvertent delays, omissions, technical or factual inaccuracies or typographical errors.  Any forward-looking statements, prediction, projection or forecast on the economy, stock market, bond market or economic trends of the markets contained in this material are subject to market influences and contingent upon matters outside the control of Endowus HK Limited (“Endowus”) and therefore may not be realised in the future. Further, any opinion or estimate is made on a general basis and subject to change without notice. In presenting the information above, none of Endowus HK Limited, its affiliates, directors, employees, representatives or agents have given any consideration to, nor have made any investigation of the objective, financial situation or particular need of any user, reader, any specific person or group of persons. Therefore, no representation is made as to the completeness and adequacy of the information to make an informed decision. You should carefully consider whether any investment views and products/ services are appropriate in view of your investment experience, objectives, financial resources and relevant circumstances. You may also wish to seek financial advice through a financial advisor or the Endowus platform and independent legal, accounting, regulatory or tax advice, as appropriate.

No invitation or solicitation

Nothing contained in this article should be construed as a solicitation, an offer to buy or sale, or recommendation, to acquire or dispose of any security, commodity, investment or to engage in any other transaction in any jurisdiction in which such solicitation, offer to buy or sale would be unlawful under the securities laws in such jurisdiction. No information included in this article is to be construed as investment advice or as a recommendation or a representation about the suitability or appropriateness of any advisory product or service; or an offer to buy or sell, or the solicitation of an offer to buy or sell, any security, financial product, or instrument; or to participate in any particular trading strategy. Investors should seek independent financial and tax advice before making any investment decision.

Product Risk Rating: Please note that any product risk rating (the “PRR”) provided by us is an internal rating assigned based on our product risk assessment model, and is for your reference only. The PRR is subject to change from time to time. The PRR does not take into account your individual circumstances, objectives or needs and should not be regarded as advice or recommendation to purchase, hold or sell any fund or make any other investment decisions. Accordingly, you should not solely rely on the PRR in making your investment decision in the relevant Fund.

This article  has not been reviewed by the Securities and Futures Commission or any regulatory authority in Hong Kong.

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