Because they’re just starting out, early career accumulators—loosely defined as people in their 20s and 30s—don’t typically have much in the way of financial capital (unless they’re technology savants or supermodels, that is).

Not only are their earnings often low relative to where they’ll be in the future, but new university grads may also be digesting student debt.

But early career accumulators have other assets that their older counterparts can look upon with envy. With a whole lifetime of earnings stretching before them, early career people are long on what investment researchers call human capital: Their ability to earn a living is their greatest asset by a mile.

Investors in their 20s and 30s have a valuable asset when it comes to investing, too: With a very long time horizon until they’ll need to begin withdrawing their money (for retirement, at least), early career investors can better harness the power of compound interest. They can also tolerate higher-volatility investments that, over long periods of time, are apt to generate higher returns than safer investments.

If you’re just embarking on your investment journey, it’s hard to go too far wrong with the mantra of investing as much as you can on a regular basis and sticking with very basic, well-diversified investments.

But it also pays to think of your 'investments' in a broad sense, steering your hard-earned dollars to those opportunities that promise the highest return on your investment over your time horizon.

Here are eight tips for investing well and multitasking in your 20s and 30s.

  1. Put debt in its place.
  2. Make the investment in human capital.
  3. Build a safety net.
  4. Kick-start your retirement accounts.
  5. Invest in line with your risk capacity.
  6. Employ simple, well-diversified building blocks.

1. Put debt in its place


One of the earliest forks in the road that many early accumulators face once they begin earning a paycheck is whether to steer a portion of that paycheck to service debt or to invest in the market.

If it’s high-interest-rate credit card or personal loan debt that features a particularly high rate, it’s worthwhile to earmark the bulk of one’s extra cash for those “investments.”

The reason is that it’s impossible to earn a high guaranteed return from any portfolio investment today, whereas retiring debt delivers a guaranteed payoff that’s equal to your interest rate, less any tax breaks you’re getting on your debt.

As a general rule of thumb, investors carrying debt with an interest rate of 5% or more would do well to focus on paying down those loans (or possibly refinancing into more favorable terms) before moving full steam into investing in the market.

One exception: building an emergency fund (more on this below).

2. Make the investment in human capital


While we’re on the topic of “investments” in the broadest sense, the 20s and 30s are also the ideal life stage to make investments in your own human capital—obtaining additional education or training to improve your earnings power over your lifetime.

Of course, not every such investment pays off, and it’s ideal if you can get your employer to shoulder at least some of the financing.

But if you have considered an advanced degree or extra training of any kind, the earlier you get started, the higher your lifetime return on your outlay is apt to be.

3. Build a safety net


With limited financial capital, it’s essential that young accumulators protect what they have and be able to cover financial emergencies should they arise.

A good rule of thumb is to insure against risks that would cause extreme financial hardship and to skip insurance for items that would not. Homeowner’s (or renter’s) and auto insurance are musts, as is life insurance if you have minor children; on the flip side, you can do without the extended warranty for your laptop or washing machine. 

As a note - most superannuation funds offer life, total and permanent disability (TPD) and income protection insurance for their members, so check that you're covered and compare it with what's available outside super.

An emergency fund is also essential, as having a cash cushion on hand can keep you from having to resort to unattractive forms of financing like credit cards if you lose your job or encounter a surprise expense.

While the rule of thumb of stashing three to six months’ worth of living expenses in cash might seem daunting, remember it’s three to six months’ worth of essential living expenses, not income.

Gig economy workers and contractors should consider setting a higher savings target, as their cash flows from their jobs can be very lumpy.

4. Kick-start your investing journey


There are a lot of reasons that early accumulators avoid the topic of saving for retirement. 

Many people in their 20s and 30s are scraping to get by, and often have one or more shorter-term goals competing for their hard-earned dollars alongside retirement savings: saving for a deposit for first homes, cars, weddings, and children, for example.

Psychology is also in the mix: With retirement three or four decades into the future, people who are just embarking on their working careers may be hard-pressed to feel a sense of urgency in saving for it.

Yet, the youngest investors have the longest time to benefit from compounding, and that benefit accrues even if they’re only able to save fairly small sums and the market gods serve up “meh” returns over their time horizons.

The 22-year-old who starts saving $200 a month and earns a 5% return per year will have more than $362,000 at age 65. Meanwhile, an investor who waits until 35 to start investing yet socks away $300 a month and earns a 6% return will have a little more than $300,000 at age 65.

Those first 10 years of missed compounding swamp both higher returns and higher contributions later on, underscoring the virtue of getting started on retirement saving as soon as you can, even if it means starting small.

Fortunately employers in Australia must pay at least 10.5% of your 'ordinary time earnings' into your super account, known as the super guarantee. But it shouldn't be a set and forget - as Morningstar's Annika Bradley explains, setting aside a couple of hours to compare your super options can have a huge impact on your future retirement.

"You are never too young to start; in fact, the younger the better," she says.

"The big "levers'' in retirement planning are how many years until you retire; how much you can save and invest during those years; and the investment returns you can earn."

5. Invest in line with your risk capacity


Investors are often advised to consider their risk tolerance: How they’d feel if their portfolios lost 5% or 10% in a given week or month. That’s not unimportant, especially if a nervous investor is inclined to upend her well-laid plan at an inopportune time.

But the really important concept is risk capacity—how much you could lose without having to change your lifestyle or your plan for the money.

It’s important to understand the difference between risk tolerance and risk capacity and to make sure that the two measures are in sync with one another.

When it comes to retirement savings, early career accumulators have high risk capacities because they won’t likely need their money for many years to come.

That’s why retirement portfolios usually feature ample weightings in stock investments: Even though they feature sharper ups and downs than safer securities like bonds and cash, stocks have historically rewarded their long-term investors with better returns than other asset classes.

That helps explain why the Morningstar Lifetime Allocation Indexes (which provide asset allocations for investors at various life stages and with different risk tolerances) and most target-date mutual funds hold about 90% in stocks and the remainder in bonds and cash.

On the other hand, if you’re investing for shorter-term goals—such as a home deposit, you probably don’t want to have much, if anything, in stocks.

Yes, the returns from bonds and cash are apt to be much lower, but they’re also much less likely to encounter big swings to the downside. Portfolios for near-term goals might include a dash of stocks for growth potential, but the bulk of your money for such goals should be in safer, lower-returning assets.

6. Employ simple, well-diversified building blocks


With thousands of individual stocks, managed funds, and exchange-traded funds, deciding how to invest can seem daunting, but resist the urge to overcomplicate and/or to venture into overly narrow investment types.

Instead, focus on low-cost, broadly diversified investments.

If you don’t want to delegate control of your portfolio’s stock/bond/cash mix and investment selection to a portfolio manager, a simple way to put together a well-diversified portfolio is to employ index funds or exchange-traded funds (ETFs).

Such funds track a segment of the market, such as the S&P 500 or the S&P/ASX 200, rather than trying to beat it. That may sound uninspired—and uninspiring. But broad-market index funds often have the virtue of very low costs, which can give them a leg up on actively managed funds over time.