5 Popular Investment Types and Strategies for Young Adults

Choosing the best investments for young adults can feel overwhelming for those just starting their financial journey. Yet, the earlier you begin, the more time your money has to grow. Today’s investment landscape offers everything from traditional options like stocks and bonds to newer alternatives such as cryptocurrency. Whether you’re saving for retirement, planning to purchase a home, or simply want to grow your wealth, working with a financial advisor can provide valuable insights as you develop your strategy. Here are some of the best investments for young adults for you to consider.

1. 401(k) Plans

A 401(k) plan represents one of the most accessible entry points into investing for young adults. These employer-sponsored retirement accounts allow you to contribute a pre-tax portion of your paycheck. This reduces your taxable income while also building your nest egg. Many employers sweeten the deal by offering matching contributions—essentially free money.

Most 401(k) plans offer various mutual funds that span different asset classes. Your plan likely includes target-date funds that automatically adjust risk levels as you approach retirement. As a young adult with a longer time horizon, also consider growth-oriented equity funds. They have historically delivered higher returns over extended periods.

2. Individual Retirement Account (IRA)

An Individual Retirement Account (IRA) offers young adults significant tax advantages. Traditional IRAs allow contributions that may be tax-deductible now, while Roth IRAs offer tax-free growth and withdrawals during retirement. These tax benefits can substantially increase long-term investment returns.

Unlike employer-sponsored retirement plans that may limit investment options, IRAs provide remarkable flexibility in what you can invest in. Young investors can select from stocks, bonds, mutual funds, ETFs, and more. This freedom allows for creating a truly personalized retirement strategy that can evolve as your financial knowledge grows.

3. Exchange-Traded Funds (ETFs)

5 Popular Investment Types and Strategies for Young Adults

Exchange-traded funds (ETFs) have helped to revolutionize investing for young adults. They offer instant diversification at a fraction of the cost of building a portfolio stock by stock. These investment vehicles trade on exchanges like individual stocks but contain baskets of securities that track specific indexes, sectors, or asset classes. For newcomers to investing, ETFs provide an accessible entry point to the market without requiring extensive research on individual companies.

One of the most attractive features of ETFs for young investors is their typically low fees. Many popular ETFs charge annual fees of less than 0.1%, allowing more of your money to work for you rather than paying for fund management. This cost efficiency becomes particularly powerful when compounded over the decades-long investment horizon that young adults enjoy.

4. Stocks

Stocks represent ownership shares in a company, making them one of the most accessible investment vehicles for young adults. When you purchase stock, you’re buying a small piece of that business. This piece allows you to participate in its growth and success over time. Many financial advisors recommend that younger investors allocate a significant portion of their investment portfolio to stocks due to their long-term growth potential.

The historical performance of the stock market has shown average annual returns of approximately 10% before inflation. This outpaces many other investment types over extended periods. This growth potential makes stocks particularly attractive for young adults who have decades before retirement. The power of compounding interest can transform even modest regular investments into substantial wealth when given sufficient time to grow.

5. Dividend Funds

Dividend funds offer young investors a way to generate passive income while building wealth over time. These funds purchase stocks in companies that regularly distribute a portion of their profits as dividends. For newcomers to investing in stocks, dividend funds provide an accessible entry point with built-in diversification and professional management.

Dividend funds focus on companies with strong histories of paying consistent or growing dividends. These funds typically invest in established businesses with stable cash flows rather than high-growth startups. The fund collects dividend payments from all holdings and distributes them to shareholders. These are either cash payments or dividend reinvestment programs that purchase additional fund shares.

Tips for Starting to Invest as a Young Adult

Investing early in life can set you up for financial success and security. Here are essential tips for starting your investment journey:

Start with an emergency fund: Establish 3-6 months of living expenses in a high-yield savings account. This financial cushion protects your investments from being liquidated during unexpected emergencies and gives you peace of mind.
Take advantage of employer retirement plans: If your employer offers a 401(k) match, contribute at least enough to get the full match—it’s essentially free money.
Consider low-cost index funds: These diversified investment vehicles track market indexes and typically have lower fees than actively managed funds.
Use technology to your advantage: Investment apps and robo-advisors make it easier than ever for young adults to start investing with small amounts of money.

Bottom Line

Starting to invest early gives you the powerful advantage of compound interest, potentially turning modest contributions into significant wealth over time. Consider consulting with a financial advisor to create a personalized plan that aligns with your specific circumstances and objectives. By taking thoughtful steps today and remaining consistent, you’re positioning yourself for greater financial security and freedom in the years ahead.

Tips for Investing

Using a financial advisor for all of your needs can be important to achieving long-term investment success. They have the expertise to guide you in the right direction. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Using an investment calculator can make a huge difference in helping you understand how a particular asset might change your portfolio over time.