8 of the Best Investment Strategies for Young Professionals
Young professionals are frequently faced with consequential financial choices and one may find themselves wondering what are the best investment strategies for young professionals to grow wealth in 2024? There’s no magic formula and one size definitely does not fit all. In that regard, there is no best investment or financial strategy that can be broadly applied. Instead, there are a multitude of factors that you should consider when charting your financial path and we offer 8 items to look out for below. In some cases, those with high income, stock options or other complexities would find a relationship with tax and wealth management professionals greatly beneficial.
Below we list a selection of things one should keep top of mind to maintain and improve their financial health.
1. Create Emergency Fund – Priority #1
Buying and selling stocks might seem like a great place to start. After all, it is how many folks have gotten rich. But it’s important to build a cushion first, as life has its own set of twists and turns. A solid reserve means different things to different people, but we believe that about six months of expenses set aside in cash and cash-like instruments can protect you from untimely transactions to pay for unexpected financial disruptions, High-yield savings accounts are a great place for this fund, but we caution that “high-yield” is a marketing word and may not actually mean the yield is good. Traded money market funds tend to have single-day settlement (a trade today means the money is available for you to use tomorrow) and for a small amount of effort, you can dramatically boost your return. For clients, we often use Schwab’s government money market fund, SNVXX.
2. Prioritize Retirement Accounts Including 401(k) & IRAs
For young professionals, investing in retirement accounts like a 401(k) or Individual Retirement Account (IRA) provides both immediate and long-term tax advantages. Immediate benefits include employer matching, which means that for every dollar you contribute, employers often offer $0.50 or even a full $1. In many cases, employers can contribute in excess of their required match, which becomes “free money” to the employee. Stocks have had great returns over the years, but contributing a dollar to get $1 or $0.50 immediately is hard to beat, plus those retirement contribution dollars can be invested in the market right away for additional upside potential.
While a humble retirement account won’t help you get rich quick, primarily because the money is inaccessible for decades (without a penalty), it can be expected to grow over time. At an 8.4% growth rate, just $100 saved per month grows near $500,000 after 40 years, while a $500 contribution approaches $2 million.
3. Diversification is One of the Best Investment Strategies for Young Professionals
Individual stocks, index funds and exchange-traded funds (ETFs) are popular investments for young investors, but diversification (putting your eggs in different baskets) can still be tricky. Individual stocks give a young investor the most control over their diversification, but it also requires the most effort, combing through the 3,000+ U.S. listed stocks and uncovering those with the best upside potential. ETFs and mutual funds often appear to be diversified, but might not actually be sufficiently diversified. For example, the SPDR S&P 500 ETF (SPY) has about 500 members, but they are not evenly spread out. The top 10 holdings make up about a third of the index, and a third of the index by weight is the Information Technology sector. That’s not necessarily bad, but it does require some additional awareness.
4. Consider Real Estate Investment Trusts (REITs)
If you’re interested in real estate and/or cash flow but aren’t ready to buy a physical property, Real Estate Investment Trusts (REITs) allow one to invest in real estate markets without a large upfront investment. REITs often pay dividends, which can be reinvested or serve as passive income, and they provide exposure to real estate sectors like commercial properties, offices, health care facilities and data centers.
5. Leverage Dollar-Cost Averaging
Dollar-cost averaging (DCA) involves consistently investing a fixed amount, regardless of its performance. This approach reduces the risk of making a large investment during a market peak and can lead to higher returns in volatile markets. DCA is particularly suitable for young investors who are contributing regularly to their 401(k), IRAs, or brokerage accounts. Many 401(k) plans have the technology to dollar-cost average embedded in their software and make it easy for professionals to “set it and forget it.”
6. Allocate Funds to Value Stocks
Value stocks are shares in companies that can be purchased at a discount relative to their expected future value. Although volatility is part of any investment equation, value stocks are a good fit for young professionals with a long investment horizon, as these stocks have high potential for appreciation and have historically had solid performance.
7. Utilize Health Savings Accounts (HSAs)
An HSA is a triple-tax-advantaged account, meaning contributions are tax-deductible, growth is tax-free and withdrawals for qualified healthcare expenses are also tax-free. HSAs are a valuable tool for young professionals with high-deductible health plans, providing a way to save for medical expenses while investing part of the balance for future growth. For 2025, contribution limits for those with self-only coverage is $4,300 and is $8,550 for those with family coverage.
8. Focus on Continuous Learning
Financial literacy is one of the best investments you can make in your 20s and 30s. In addition to news outlets like Bloomberg and The Wall Street Journal to keep investors up to date with the latest information, we also recommend perusing our list of top investing-related books.
Wrapping Up the Best Investment Strategies for Young Professionals
Young professionals have a unique advantage when it comes to investing: time. By starting early, staying consistent, and diversifying wisely, one can capitalize on compounding returns to build long-term wealth. Tailor your own investment strategy to align with your personal financial goals and consider consulting a financial advisor for a personalized plan.
