How to Invest In Mutual Funds In Your 20s and 30s

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What's the best way to invest when you are younger? There is no one-size-fits-all investment strategy for people in their 20s and 30s but there is no doubt that mutual funds are one of the best investment types for young people.

In this article, we'll explain why mutual funds can be the best investment types for young and beginning investors and specifically which mutual funds are best for investors in their 20s and 30s.

Why Mutual Funds Are Best for Young Investors

Here are the primary reasons why mutual funds are ideal for young and beginning investors:

  • Simplicity: Not that young people can't handle complex financial concepts, it's that most investors in their 20s and 30s don't have complex financial needs. And because mutual funds are easy to research and buy, they make good choices for young investors.
  • Diversification: Since mutual funds hold dozens or hundreds of other securities, such as stocks and/or bonds, a young investor can get started and do well with just one or two funds.
  • Accessibility: There is very little money or financial skills necessary to buy mutual funds. In fact, there are low-cost funds to get started investing with just $100 and these funds don't require a broker or advisor to buy them. The only thing needed to invest in mutual funds is a little money and a little time to open an account. 

But mutual funds are not just for beginners or young people. They are used by professional money managers and expert investors around the world.

Best Fund Types for Investors in Their 20s and 30s

Assuming young investors are saving for a long-term goal, such as retirement, there is likely a time horizon of up to 30 years or more. Although all investors should be aware of their own investment objectives and risk tolerance, the longer you have until you need your money, the more aggressively you can invest.

Here are the basic types of funds that young investors are wise to consider:

  • Target Date Mutual Funds: As the name suggests, Target-Date Mutual Funds invest in a mix of stocks, bonds, and cash that is appropriate for a person investing until a certain year. As the target date approaches, the fund manager will gradually decrease market risk by shifting assets out of stocks and into bonds and cash, which is what an individual investor would do manually themselves. Therefore, target-date mutual funds are a type of "set it and forget it" investment. For example, if you are saving for retirement and think you may retire around the year 2045, a good choice for you might be Vanguard Target Retirement 2045 (VTIVX). Then you can end your research, periodically add new money to the fund, and watch your nest egg grow as you go on about living your life! Set it and forget it!
  • Balanced Funds: Also called hybrid funds or asset allocation funds, these are mutual funds that invest in a balanced asset allocation of stocks, bonds, and cash. The allocation usually remains fixed and invests according to a stated investment objective or style. For example, Fidelity Balanced Fund (FBALX) has an approximate asset allocation of 65% stocks, 30% bonds, and 5% cash. This is considered a medium risk or moderate portfolio.
  • S&P 500 Index Funds: Index funds can be a great place to begin building a portfolio of mutual funds because most of them have extremely low expense ratios and can give you exposure to dozens or hundreds of stocks representing various industries in just one fund. Therefore, you can meet the initial goal of getting a low-cost, diversified mutual fund. For more on index funds, check out our Index Investing FAQ page. Again, Vanguard, Fidelity and T. Rowe Price are good mutual fund companies for index funds. You can also look at Charles Schwab.

Where Young Investors Can Buy Mutual Funds

Any investor, assuming they are at least 18 years, can buy mutual funds at virtually any fund company or brokerage firm that offers them. The best place to buy mutual funds for anyone who wants to invest without an advisor should use one of the best no-load mutual fund companies. "No-load" funds are those that do not charge commissions, which are only necessary to pay if you are using a broker.

You will want to consider mutual fund companies that have a wide variety of mutual fund categories and types because you will need to continue building your mutual fund portfolio for the purposes of diversification. Some of the best no-load mutual fund companies include Vanguard Investments, Fidelity and T.Rowe Price.

Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.