The 5 BEST Investments To Make in Your 20s

What's up, Graham? It's Guys here. So listen, I realize it's easy to get sidetracked online with stories about how the world is falling apart, the perpetually upcoming stock market collapse, and Jeff Bezos' NASA lawsuit that's so big it keeps crashing computers. But today, we're going to turn things around and talk about the goods, like the soon-to-be teenager who just made four hundred thousand dollars selling NFTs of a pixelated whale.

All right, but in all seriousness, since the vast majority of my audience is under the age of 30, I thought it would be a good idea to talk about the best investments that you could buy in your 20s and then keep for the rest of your life to build wealth. And if that sounds easy, it's because, well, actually, it's that easy! These five investments would literally give you the ultimate diversification across every single asset class in the entire world with the highest average returns. None of it should be too far out of reach as long as you have an internet connection, and almost all of it could be started immediately regardless of how much money you have.

But really quick, if you guys enjoy videos like this where I cover the best investments to make throughout every decade, just let me know by hitting the like button. That gives me a really good gauge of these are the types of videos you want to see more of, and that helps out my entire channel tremendously. So thank you guys so much! And also, a big thank you to Policy Genius for sponsoring this video, but more on that later.

All right, so we'll start with the easiest, freest one first, and that would be: build your credit score. Now, I get that some of you might be upset and comment, "But come on, your credit score is not an investment!" Yes, clickbait! Plus, Dave Ramsey said that credit cards are bad. And all right, I'll admit: Dave Ramsey does not like credit cards, but I do! And if you don't understand how this could easily be one of the best investments within the entire video, I'll explain along with how you could get a perfect credit score for the low cost of absolutely nothing.

Now, as a background, your credit score is a collection of numbers that ranges anywhere from 300 all the way up to 850. And the higher your credit score is, the more likely you are to get access to a low-interest rate, a mortgage, a personal loan, credit cards, banking services, and an entire secret world where banks and lenders are literally just throwing money at you. So if you want a perfect credit score for free, here is everything you need to know summarized in about two minutes.

To start, your credit score is calculated by these five components. The first and largest factor is based on what's called your on-time payment history, and that makes up 35 percent of your score. This means you always pay your bills on time, as agreed, without ever being late or missing a payment. The second largest component is what's called your utilization rate, and that makes up 30 percent of your score. This calculates how much credit you have available to you versus how much of that you use. If you're somebody who maxes out all your credit cards, you use almost all the credit that's given to you; that'll lower your score because you're seen as a riskier borrower. So don't do that!

Then third, we have the average age of your credit, and that makes up fifteen percent of your score overall. Lenders love to see that the longer you've had your accounts open for and in good standing, the higher the chances are that you're going to be a good, experienced borrower. And fourth, we have the types of credit that you have, and that makes up another 10 percent of your score. This means that lenders want you to have experience handling multiple types of loans, just to be able to prove to them that you're financially responsible adults who know how to pay their bills on time. And finally, number five: the remaining ten percent is calculated by the number of credit inquiries that you have. See, anytime you go and apply for a new line of credit, it shows as a hard inquiry on your report, and generally speaking, the more hard inquiries you have on your report, the lower your score is temporarily going to be because lenders see you out there actively trying to get as much credit as possible, and because of that, you're seen as a riskier borrower, and because of that, your score is lower.

So with all of that fancy jargon out of the way, if you want to build your credit score past 800 for absolutely free, here's exactly how you could do that. One, if you're just starting out with no credit history, all you have to do is get a no-annual-fee secured credit card. They don't pay me to say this, but my personal favorite is the Discover It's Secured Card, where you put down a refundable deposit, and in return, they give you back a credit line equivalent to that amount. Then after that, all you got to do is put a few normal expenses on the card every single month and then pay it off in full by the time it's due. That's it!

And if you want to expedite the process even faster, you could get two no-annual-fee secured credit cards at the exact same time. For example, you could get the Pedal One no-annual-fee Visa card or the secured MasterCard from Capital One. Just make sure whatever cards you get do not have any annual fee because these are the cards that you're going to keep forever to bolster down the average length of your credit history.

Then second, go and sign up for one of the free credit monitoring websites like Credit Karma or Credit Sesame. This will help you monitor your credit history, and then over time, you can watch your score go up all for free. Then third, after six months of paying off your secured credit card on time in full, go and apply for another no-annual-fee credit card. See, when the almighty credit scoring algorithm calculates your score, they do so by combining your total number of on-time payments with your overall credit utilization. So in this example, having more credit available to you is going to help your score.

Now if you want some examples of no-annual-fee credit cards that I personally like, we have the Bank of America Cash Rewards Card, the Citi Double Cash Rewards Card, the Chase Freedom Flex, and the Blue Cash Everyday from American Express. From there, just continue doing the same things that you've done before: put a few small charges on the card, and then just pay it off in full by the time it's due. Then fourth, after about 18 months, you should have built up a credit score around 740, which begins to give you the lowest interest rates anytime you leverage your money.

Now, I realize that's still not an 800 perfect credit score, but once you've built up the foundation of your credit, all it takes is just time and patience to get there. And for something that's totally free that takes you just a few minutes of work every single month, it's worth it to do as soon as possible.

The second best investment that you can make in your 20s is simply a broad market index fund. And if you're thinking, "Oh, that sounds confusing!" It's absolutely not! In fact, this could be the simplest and most effective investment that you ever make in your 20s. And here's why. Now for anybody unaware, an index fund is basically just a big basket of stocks that you could buy into so that way, you own a small portion of everything. It's kind of like walking into the cookie store and seeing a hundred different cookies all for sale at a dollar each. And at that price, it's difficult to go and buy all of the cookies to try to find the best ones.

So instead, the cookie store has another option: they have a twenty-dollar sample box that has a small piece of all 100 cookies, all in one place. That way, you're getting a little bit of everything for way less than it would cost to buy each of those individually. The same thing also works for stocks when it comes to an index fund. Instead of going to the stock store and buying each stock individually at full price, you could just buy an index fund that contains all of them for one low price.

The advantage to doing this is that so far, index funds have outperformed 99percent of active investors over a 20-year period. And also doing this is very little work! There's no need to research individual stocks or stress about the price going up and down for seemingly no reason. Just buy into an index fund on a consistent basis, and that's it!

And best of all, one of the major advantages of doing this is that index funds cost almost nothing to manage. That's because a lot of these indexes are very easy to put together, and there's not a lot of overhead, so they pass a lot of the savings back onto you as the customer. And lastly, you've got a huge advantage of diversification, which means long-term, your investment is going to be a lot more stable. And even though sure, it's kind of top-heavy towards tech, you still have 400 other companies to balance things out.

If you want specific examples, it usually depends on which brokerage you're with, but if you want the S&P 500, you could do something like VOO with Vanguard, SCHP with Charles Schwab, or FSKAX with Fidelity. Or you could also do SPY, which you could buy anywhere. I like this because it focuses on U.S. companies, which so far have had a solid history of growth. On the other hand, if you want the entire stock market all at once, you could go with something like DTI or VTI with Vanguard, SCHB with Schwab, or FSKAX with Fidelity. It really doesn't matter so much what you choose because they basically all track the same thing.

But the big picture for the most passive investors who just want something that they could buy into consistently long-term without a lot of research or work is given up diversification that long-term they could end up doing really well, especially if you buy them in your 20s.

However, we shouldn't just stop there because now that we're on the topic of index funds, there's another one that you could potentially buy and just hold on to forever. But before we go into that, listen: Summer's already coming to an end, and we're about to enter fall. But that doesn't mean I can't follow up with making sure you get covered with life insurance. And thankfully, our video sponsor today, Policy Genius, is here to help! Policy Genius makes it easy to compare quotes from over a dozen top insurers all in one place, and you can save 50% or more in life insurance by comparing quotes with Policy Genius.

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All right, so now that we got that taken care of, the next option that you could look into is what's called an international index fund. This is an index fund that covers the entire market outside of the United States, including emerging markets in Europe, the Pacific, the Middle East, North America, and 2% other. Some of the largest holdings here are companies that we use day-to-day like semiconductors, video games, Alibaba, Samsung, Nestle, Toyota, and so on. The advantage here is that as other countries grow and develop, their stock price increases, and therefore, you make money.

Now, the thing is, over the last 10 years, international index funds like this have remained fairly flat, and as it is right now, the U.S. market has been on a tremendous bull run that has outperformed pretty much every other market out there. But that isn't guaranteed to always happen. Throughout history, there have been times where the international index fund has outperformed the United States, like throughout the 1980s and 2000s. And I think it's worth taking into consideration that possibly that could happen again.

Plus, even if it doesn't outperform the United States, you're still getting paid a much higher dividend in the process, and you're diversifying your investments for more stability day-to-day. That's why I've allocated about 20% of my total stock market portfolio to an international index fund because most likely, the U.S. is not always going to be in the lead all the time. And when you're young, now is the time to make those investments that will eventually become the foundation for everything else you do later on in life.

In terms of which ones to buy, you could usually just go to Google and type in "my stock market brokerage international index fund." Make sure to subscribe, and then a list will come up with the exact matches. Or if you just want me to list off a few of them, just so you have them here, you could go with something like FISVX from Fidelity, SWIS from Schwab, or VEU from Vanguard. Those might be able to get you started in the right direction, and all of them are pretty similar.

Now again, I probably wouldn't go crazy here and invest all of your money in a wild Wall Street Bets YOLO, but for 10% to 30% of your overall portfolio, this could wind up being a really good investment to make in your 20s.

And fourth, we have my personal favorite that single-handedly got me obsessed with investing when I was 21 years old, and that would be real estate. Now here's the thing with real estate, especially right now: it's not cheap. The market is the most competitive it's ever been in history, inventory is absurdly low, and it could be a challenge to even save enough money for a down payment in the first place, especially in your 20s.

However, I wouldn't let that dissuade you from jumping in because I believe with consistency, frugal living, and the discipline to wait to find the right property, real estate could very well be within your reach, especially if you have a perfect credit score that you got for free anyway. For me, there are six main reasons why this could be such a lucrative investment in your 20s.

First, the reality is, everyone needs a place to live! Housing is something that a new company can't just go and magically replace one day; it can't be outsourced, and it can't be made cheaper online and then sold by Alibaba, or you know what? Who knows, maybe it can! Point being, everyone needs a home, and if they're not buying, they're renting. So this encompasses pretty much everybody.

Second, a bank would lend you almost all the money you need to buy a house as long as you're able to come up with the 10% to 20% down payment. This gives you a huge advantage over stocks in that you have complete control over the property without having to pay for the entire thing up front or being margin called in the event the market drops.

Third, because you have complete control over the house, you could make strategic renovations to increase that property's value and increase the amount you could rent it for. For example, when I first started buying real estate, I purposely looked for places that were just a little bit worn down; they were a little bit dated, and with a few months of work, I could turn them into looking brand new. Something like that also has the power to increase the value of your home quite a bit.

Fourth, the property could also serve multiple purposes: you could move in as a cheaper alternative to renting, or you could rent it out to somebody else as an immediate return on your money. I actually took this a step further by combining the two: by buying a two-unit building, moving in one side, and then renting out the other to cover my cost of living. That's how I was essentially able to live for free by buying multiple buildings in the middle of Los Angeles and then repeating that strategy to eventually increase my passive income.

The fifth, speaking of low interest rates, I see real estate as a massive hedge to inflation long-term. That's because when you get a mortgage from a bank, you're borrowing money and getting to pay it back over 30 years. The benefit here is that you're able to pay it back with future dollars, which most likely are going to be worth way less than the money is today.

And six, there are just so many great tax advantages in real estate. Pretty much every single expense is a write-off against your rental income, like property taxes, insurance, HOA, repairs, you name it! Not to mention you can also depreciate the value of the property over 27 and a half years. So if you have a building that's worth two hundred and seventy-five thousand dollars, you could write off the first ten thousand dollars of profit that you make, essentially making that money tax-free.

Now, in terms of where to get started, I have a 30-minute video that details everything you need to know, but as the quick SparkNotes version here, here's what I recommend: First, buy a home for yourself. This allows you to get a loan as a primary residence, which means you get a lower interest rate, less money down, and more favorable terms than had you just bought a rental property upfront.

Second, speaking of that, you should buy a home that you could fix up. Again, I stick with really simple cosmetic repairs that I could finish in about two to three months. Doing that helps increase the value of the property and then, subsequently, what you would be able to get for it for rent.

And third, ideally buy a two to four-unit building that you could house hack. See, banks call four units and under residential for loan purposes, and as long as you agree to move in one of the units, at least for a year, they will lend you a mortgage for the entire building, even though technically you plan to rent most of it out. If you do this correctly, the rents from the other unit should be able to cover your entire higher cost of living, and you get a free place to live while the rental income helps pay down the mortgage.

Now, I am certainly simplifying things a lot, but this is one of the most popular strategies of real estate investing, and for good reason. I have several videos that I've done in the past that detail everything you need to know, so if you want to see them, I'll just link it down below in the description.

And fourth, your 20s could be the perfect time to do this because you have the time to learn and pay it off before you're too old to enjoy all of that money. But just consider this: you could spend the next year seeing homes every single weekend, and by the age of 30, save up enough for a down payment on a three-unit building that you could use as a primary residence. Even if you move out after a year or two, you still keep the building; it's still making you rental income, and after 30 years, that building will have been paid off, and everything you make will be pure profit, with the exception of property taxes, insurance, vacancy repairs, and maintenance. But you get the point: the sooner you start, the sooner this is going to be paid off!

And lastly, number five: we couldn't have a video about the best investments to make in your 20s without talking about cryptocurrency. Now, here are my thoughts on this: historically, cryptocurrency still is unproven. We don't have a hundred years of data to back this up; there really is no precedent for this to follow, and we have no idea what could happen in the future. But over these last 10 years, I gotta say, the stats are quite impressive! Bitcoin was the best performing asset of the decade, returning more than 10 times more than the stock market. It was also the best performing asset of 2020, outpacing everything else. So I think there's certainly something to be said about taking it more seriously and looking for a way that you could incorporate this into your own investment portfolio.

For myself, I currently own about three and a half percent of my entire portfolio in cryptocurrency, split between Bitcoin and Ethereum, and my goal is to get that to five percent by the end of the year. There's certainly a chance it drops 90 percent, and there's certainly a chance it 10x's from here. But given the newness compared to everything else I've just mentioned, like buying real estate or investing in the stock market, my thought is it's worth it just to give it a shot and see what happens.

Plus, in your 20s, even if it does become completely worthless and you lose 90 percent of your money, you still have the rest of your life to financially recover. It's not like you're 60 years old and a few years away from retirement, and then you YOLO all of it into a random altcoin promoted by a Twitch influencer who jokes about it going to the moon. But as it turns out, it was a rug pull, and the price plummets, and you lose almost all of your money. But you clutch onto that last bit of remaining hope that it might eventually recover, but then the final nail in the coffin is that Coffeezilla calls it a scam.

All right, you know I'll stop! Who knows if it'll continue to be the best performing asset of each decade, but even a one to five percent allocation could end up making you a lot of money if it does. And I gotta say, the most important aspect from all of this is simply just to start now. Joke! If you could just begin as soon as this video is over and then get in the habit of investing consistently, I promise your future self is going to thank you! Unless, of course, you're YOLOing everything into Wall Street Bets call options and then buying pixelated whale NFTs. Probably don't do that!

So with that said, you guys, thank you so much for watching! I really appreciate it. As always, make sure to destroy the like button, subscribe button, and notification bell. Also, feel free to add me on Instagram; I post pretty much daily, so if you want to be a part of it there, feel free to add me there! Also, on my second channel, The Graham Stephan Show, I post there every single day, don’t post here. So if you want to see a brand new video from me every single day, make sure to add yourself to that. Thank you so much for watching, and until next time!