Investing in your 20s

Joss Murphy 15/06/2023 in Equities

The earlier you start putting money away, the greater your chances of building an impressive nest egg that you can use for any purpose. For example, you may dream of buying a big house in the country or having a bumper pension pot to fund a carefree – and early – retirement.

That’s why beginning your investment journey in your 20s makes a lot of sense. Your money has longer to grow and can recover from stock market volatility. However, it’s not always quite as simple.

Here we take a look at where your financial priorities are likely to be during this decade and highlight some investment funds worth considering.

Your situation

People are likely to have very different experiences during their 20s. Some may have been working since leaving school and are already established in their jobs. Others may have just finished university and are wrestling with mountains of debt while still debating their preferred career path.

Either way, money is likely to be fairly tight at this stage – unless you’ve managed to land a six figure salary almost immediately – as the chances are you’ll also have an active social life.

Paying off debts

If you’ve already run up substantial debts – we’re ignoring official student loans at this point as these will be taken out of your salary – then you need to address them first. It’s pointless tucking money into a savings account if you’re being hammered by 20% interest rates on credit and store cards.

Explore ways of reducing how much it’s costing you each month to service these debts. Switching to a different card provider or consolidating into one loan might be an option.

Emergency savings

Don’t lock away every last penny into your pension or other fixed term investment because you need some to hand for emergencies. For example, have you got money to pay for any unexpected car repair bills? How would you financially cope if you were made redundant? Having savings in an easy access account will give you some reassurance. Ideally, between three and six months’ of salary.

Pension saving

It may seem irrelevant but putting money away for your pension is sensible – even if you have another four decades before you can consider retiring. Even if you don’t have much money spare, it’s important to at least make a start as you’ll be gradually putting in place some financial foundations. You will really feel the benefit later in life of anything you put away during these early years as the compounding effect helps you build that pot of money.

Other savings

Individual Savings Accounts also make ideal longer-term savings vehicles. These tax-efficient wrappers enable your investments to grow free of income and capital gains tax. The relaxation of the rules governing ISAs, which were originally introduced back in 1999, has made them increasingly flexible and attractive to potential investors. In the current 2023-2024 tax year, you can save up to £20,000 in various ISA accounts, with longer-term investors drawn to Stocks & Shares ISAs. With most types of ISA you can also access your money whenever you want.

Learn more: Understanding ISA investment basics

Investment suggestions

So, what investments are suitable? At this stage of life having 100% in equities is probably best. They will give you the best chance of enjoying bumper long-term returns. Your age means you should be able to cope with stock market fluctuations – bull and bear markets are part of life – as you have a longer investment time horizon.

Presuming you’ll have a relatively small pot of money at the beginning of your investment journey, you’ll want to find the best global income funds for yourself. A simple fund would be the ideal starting point It means your money will be diversified around the globe – benefitting from various companies, sectors, and markets – and you’ll have a good core at the heart of your portfolio.

Fund suggestions

Here we highlight four global equity funds, each with a different focus, that might be worth considering by those in their 20s.

Capital Group New Perspective

This fund, which boasts a track record stretching back half a century, invests in multinationals that are able to benefit from global economic changes. It’s run by nine portfolio managers who are based around the world. They are further supported by a team of analysts contributing ideas. This approach helps the fund avoids key person risk, which is the potential downside should a portfolio’s manager no longer be able to continue in the role.

According to the most recent factsheet, this fund’s 10 largest holdings account for a fifth of assets under management and include many household names*. This list includes electric car manufacturer Tesla, luxury brand LVMH, pharmaceutical businesses AstraZeneca and Novo Nordisk, and Meta Platforms*.

GAM Star Disruptive Growth

This global equity fund searches for companies that are set to benefit from the disruption caused by ongoing waves of technological change. Its manager, Mark Hawtin, has a strong background in the tech sector, which gives him an advantage when trying to identify core future themes.

As expected, the fund’s largest holdings contain many businesses that have been at the forefront of such changes in recent years. These include Alphabet, which is the parent company of search engine Google, NVIDIA, and Airbnb*. We believe it’s a fund positioned to be on the right side of change, but without betting the house on one dominant theme. This makes for a compelling offering in the global sector.

CT Global Focus

This is a concentrated, high conviction portfolio of best ideas. It invests in high quality, high return on capital businesses which can compound over the long term. This is a genuine global fund which will venture into emerging markets but only when it can find businesses which meet its strict quality criteria.

Top ten holdings currently include Microsoft, Mastercard, Schneider – a leader in energy management and automation solutions which is helping infrastructure to decarbonise – and Keyence Corporation, a Japanese company that makes lasers, scanner and barcode readers that can carry out previously very labour-intensive tasks*.

Liontrust Sustainable Future Global Growth

This fund invests in the shares of a broad range of companies from around the world using a thematic approach to identify the key structural growth trends that will shape the global economy of the future. These range from the development of personalised medicine to the transition to lower carbon fossil fuels.

Three mega trends have been identified, with strong and dependable growth prospects. These are: better resource efficiency (cleaner), improved health (healthier), and greater safety and resilience (safer). Within these three buckets the team has identified 20 areas of predictable and resilient growth.

*Source: fund factsheet, 30 April 2023

 

Photo by Zachary Nelson on Unsplash

This article is provided for information only. The views of the author and any people quoted are their own and do not constitute financial advice. The content is not intended to be a personal recommendation to buy or sell any fund or trust, or to adopt a particular investment strategy. However, the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions.Past performance is not a reliable guide to future returns. Market and exchange-rate movements may cause the value of investments to go down as well as up. Yields will fluctuate and so income from investments is variable and not guaranteed. You may not get back the amount originally invested. Tax treatment depends of your individual circumstances and may be subject to change in the future. If you are unsure about the suitability of any investment you should seek professional advice.Whilst FundCalibre provides product information, guidance and fund research we cannot know which of these products or funds, if any, are suitable for your particular circumstances and must leave that judgement to you. Before you make any investment decision, make sure you’re comfortable and fully understand the risks. Further information can be found on Elite Rated funds by simply clicking on the name highlighted in the article.