If you are 25 years old, you may find yourself in the following situation. Several years of work experience and the ability to start saving more money. But once you build a nest egg, Should I keep my savings as cash?Or should you invest most of it in assets like stocks?
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The answer will vary greatly depending on your situation and preferences, but there are some general guidelines and benchmarks to consider.
Do young men and women keep more money in stocks and cash?
If you want to compare yourself to the average user of financial tools Power your personal dashboard, For example, consider that the average investor in their 20s has about half of their money in stocks. Specifically, people in their 20s own an average of $76,824 in U.S. stocks and $9,429 in international stocks.
However, these numbers may seem high due to the fact that you are a user of Empower’s personal finance tools. This means these people are potentially more serious about tracking their finances. If you average out people who don’t know their finances, the amount the average 25-year-old has in stocks could be even lower.
Consider your personal financial goals
Since averages can be biased, a better way to approach this question is to consider your financial goals.
For example, some people prefer to build up an emergency fund equal to about three to six months of living expenses or save in a regular brokerage account before investing in their retirement funds. Stocks are generally not a good place for emergency savings because emergency fund assets need to be highly liquid and stable.
However, once you have saved up enough of an emergency fund, you may want to start pouring your additional savings into the stock market. Alternatively, you may want to reduce your emergency savings a little at the beginning, such as if you have an available employer match, and save for retirement at the same time.
If you’re in your 20s and investing for retirement, you’re likely to invest heavily in stocks. Within the retirement portfolio, T. Rowe PriceFor example, we recommend an asset allocation of 90-100% stocks for investors in their 20s and 30s.
Expert opinions on investing and saving in your 20s
Experts have mixed opinions on how much you should save overall by age 25. As an example, Recent GOBankingRates Articlesdirected by Alice Loewen Hall Rowen Holmessuggested saving at least 20% of your annual income by age 25. This can be done by combining retirement savings with emergency fund savings, she said.
However, others in the article suggest different amounts. Actually, it depends on what you are trying to achieve and what is realistic.
For example, if you stay in college until you’re nearly 25 to get an advanced degree, you may have little savings to invest in the stock market. But if you start working part-time while you’re still in school, and are able to work full-time for a few years by age 25, you could have tens of thousands of dollars in equity, as well as an emergency fund.
So while it might be good to have a clear dollar amount that every 25-year-old should aim for, the reality is more nuanced. In general, being 25 years old means you can have a higher allocation to stocks, especially in your retirement portfolio, given the longer period of time to wait out volatility and hopefully enjoy long-term growth. But ultimately it’s up to you, and perhaps with the help of a trusted advisor, to determine the right amount and the right asset allocation.
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This article was first published GOBankingRates.com: How much money should you have in the stock market if you are 25 years old?
