First Job Out of College? Time to Start Investing

Whether you’re a recent grad or have already been in the workforce for a few years, it’s never too early or too late to start investing in your financial future. The sooner you get started, the easier it will be to achieve your financial goals and build a comfy nest egg for your later years. 

While you may already have some level of understanding of the different investment options available to you, making the big decision to hand over some of your own hard-earned money can be intimidating — and more than a little confusing. 

To simplify things, let’s dip our toes into the investment basics, then we’ll point you to some trusted resources for a deeper dive. 

Why starting to invest in your 20s pays dividends (pun intended)

It’s not just the glowing skin and higher metabolism you should appreciate in your 20s; it’s also the gift of extra time to invest in your future self. Just like exercising or eating more veggies is something you can do today that will benefit your health for years to come, making smart financial decisions is a way you can ensure a more financially healthy future. 

The sooner you start investing, the more you’ll earn over time. According to U.S. News & World Report, if you start investing $200 every month from age 25 until age 70, (assuming a 7% annual rate of return based on the long-term average stock market return of 9%, less average inflation of 2%) you could end up with $976,000 in earnings for a total portfolio of $1.1 million. Not too shabby! And think about how much more that could be if you increase the monthly investment as your salary increases over time… you’ll be well on your way to a comfortable and financially secure retirement.

 Start with a budget and set some goals

Maintaining a budget is always smart, but it’s crucial when you’re just starting out. Before you think about investment opportunities, you of course want to make sure all your bills get paid, and you’re able to build up some savings. The investment experts at SoFi recommend thinking of your money in terms of three buckets:

  1. Immediate money: Dollars set aside for groceries, utilities, rent/mortgage, car payments, and any other bills you have to pay every month.
  2. Mid-term money: What you might need in the next couple of years, like money for travel, a wedding or other significant life event, a down payment for a house, and an emergency fund (experts recommend saving enough for three to six months of expenses).
  3. Long-term money: Money you’ll use 20+ years from now (e.g., retirement, your kids’ college fund, etc.). 

Once you subtract your immediate money needs from your income, you can figure out your mid-term savings goals and set aside the amount of money you think you’ll need each month to hit them. (You might consider a high-yield savings account to build on that mid-term money while you save.) Once those buckets are filled, you can use what’s left for long-term investment. 

Know your long-term investment options

As someone earlier on in your career, you have the luxury of taking a bit more risk with your investments than someone closer to retirement age. You can also increase investments over time as you earn more. The first step is to decide what type of accounts or other investment options will work best for you at this point in your life (and beyond). 

Retirement accounts

A retirement account is a great place to stash that long-term money — and most give you some sweet tax advantages. Here’s a quick overview of some different types of retirement accounts to consider:


Many employers offer a 401k plan that qualified employees can take advantage of. (Or, if you work in government or public education, you might have a 403b retirement plan.) 

Your company will typically provide a few options to choose from for your 401k account that may include an assortment of stocks, bonds, guaranteed investment contracts (GICs) issued by insurance companies, or even your employer’s stock.

A cool thing about the 401k is that many companies will offer a match as part of their benefits package — they’ll match what an employee contributes up to a certain amount. So say you contribute 3% of your salary to your 401k, and your employer has a dollar-for-dollar match and throws in another 3%… now you’re contributing a total of 6% of your salary. Of course, some may only offer a partial match, like 25% or 50%, but hey, that’s still extra money in your (future) pocket!

Another nice thing about contributing to a 401k is that it’s generally pretty easy to set and forget. You choose your contribution amount, and your employer deducts that money directly from your paycheck. You can choose any amount up to the contribution limit that is set by the IRS each year — the 2021 limit is $19,500. 

Traditional & Roth IRAs

If your company doesn’t offer a 401k or you’re self-employed (in which case you may also qualify for what’s called a Solo 401k), an IRA may be another good option for you. There are two main types: Traditional IRA and Roth IRA. With Traditional, you can contribute up to $6k a year, and it’s tax-deferred, so you won’t have to pay income taxes on that money until it’s withdrawn. 

A Roth IRA also has a $6k contribution limit, but in this case, you’re investing money you’ve already paid taxes on. This can be a great option for those that are just starting out in their career and may fall into a lower tax bracket. That being said, there are income limits — eligibility for Roth IRA starts phasing out at $124,000 a year.

If you think an IRA might be a good option, you can open either type at most banks, a mutual fund house, or other financial institution. Some are even available online

Stocks and bonds

When you think of the stock market, maybe you picture Michael Douglas as greasy-haired Gordon Gekko making shady deals. Or perhaps you’ve been following the recent GameStop/Reddit saga and wondered how you can get in on that action. The truth is, investing in stocks isn’t that exciting or dramatic for most people.


A stock is a small piece of ownership in a publicly traded company. Stocks are also called equity investments because as an investor, you essentially own equity in that company. When you invest in a stock, you can earn money through capital appreciation or dividends, which are payments made by the company to its shareholders. The average stock market return is about 10% per year.

As we learned from the GameStop fiasco, the stock market can be volatile — supply and demand cause prices to fluctuate as trades are made. But, if you choose to invest in the stock market earlier on in your career, your portfolio will have more time to recover from that market volatility, which means you’re able to take a bit more risk to get those higher rewards. When investing in your 20s, experts recommend focusing more of your investment on stocks and slowly moving more into bonds the closer you get to retirement age.


A bond is essentially a type of contract with which you loan money to a company (or the government) for a fixed period. They’re considered “debt investments” because you’re literally investing in the company’s debt. It may sound a little shady, but bonds are actually considered less risky than stocks because they come with a stated rate of return. 

Treasury bonds (aka the ones grandmas like to buy when their grandbabies are born) are the safest type of bond because it’s unlikely the U.S. government will go bankrupt (at least we hope). Unfortunately, they’re not paying out as much as they used to — a 10-year T-bill now yields less than 1% annually, compared to interest rates closer to 10% in the 1980s. 

Mutual Funds and Exchange-Traded Funds

Unless you want to spend a ton of time and effort researching individual stocks to invest in, funds are a great option to do that work for you. A fund is like a bucket of different investments — stocks, bonds, other investment types, or a combination of each. Funds help you diversify your portfolio and protect against putting too many eggs in one asset basket. 

There are two main types of funds — mutual funds and exchange-traded funds (ETFs). Mutual funds let you purchase small pieces of several different stocks in a single transaction. Mutual funds often have minimums of $1,000 or more, so if you’re just starting out, an exchange-traded fund (ETF) may be a better option. ETFs trade like a stock, so you purchase them at a share price, often less than $100.

Not sure how to choose a fund? That really smart rich guy Warren Buffett has said a low-cost S&P 500 index fund is the best bet for most Americans.

Ask the experts

Hopefully, you learned a little something from this investment overview, but if you’re thinking about making some investment moves, it’s always a good idea to seek the help of a qualified financial advisor (which I am definitely not*). 

Financial advisors typically charge fees based on how much money you invest with their firm. They call this “assets under management” or AUM. The industry average is about 1-2% of AUM per year. If you have friends or family members that “have a guy” (or gal) they recommend, that’s always a good place to start. But if you don’t have any solid recommendations, there is a neat little Smartasset Advisor Match tool you can check out. It asks you a few questions about your financial goals and matches you with qualified advisors in your area.

“Robo-advisors” are also a good Gen-Z-friendly option if you’re looking for low-cost financial advice. There’s a range of options that come with all different types of services. Check out Nerdwallet’s 12 Best Robo-Advisors for help finding a good fit for you.

*Disclaimer: This article is for general informational purposes only and not intended to provide specific advice or recommendations to any individual on any specific investment product or strategy. It is only intended to provide education about investments and the financial industry. Any ideas or strategies discussed should not be undertaken by any individual without consultation with a qualified financial professional.