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Certificate programs offer a flexible, focused, and often more affordable way for individuals to gain specialized skills and knowledge without committing to a full degree program. Whether you’re a recent high school graduate looking to supplement your education, a working professional seeking career advancement, or someone wanting to switch industries, certificate programs provide valuable credentials in a relatively short time frame. 

Keep reading to learn what certificate programs are, their benefits, and how to choose the right one to meet your personal and professional goals.

What Is a Certificate Program?

Certificate programs are courses or vocational training provided by colleges or professional associations that last less than two years, and typically just six to nine months. They can prepare you for immediate placement in trade, technical, and vocational careers. 

Trade schools prepare you for jobs such as welder, electrician, and cosmetologist. Vocational schools focus on in-demand jobs that can be trained in two years or less, such as working as a paralegal or a dental hygienist. Technical schools teach skills for one trade and typically involve an apprenticeship. Programs include HVAC, auto repair, and some nursing certifications.

“Certifications” are the outcome of certain certificate programs to prove successful mastery of the program. Exams are officiated by state or authorized organizations, and formal licenses, diplomas, or certificates are awarded on completion. Certificates can also be career training programs for bachelor’s degree holders to expand a student’s expertise without earning a degree. For instance, a marketing professional can enroll in a social media marketing course, a niche area of marketing, to broaden their skillset. 

Certificate Programs vs College Degrees

Certificate programs and college degrees differ in curriculum, program length, cost, and program outcome.

Curriculum. Colleges require a general education curriculum, whereas certificates teach only the skills for a trade or subject. No academic courses, such as humanities, are included in the training.

Length. Certificate programs are shorter. College degrees are a minimum of two to four years for full-time students. Certifications can sometimes be just one month, but are typically three to four months for one-off courses. Training programs for certifications are usually one to two years.

Cost. A college education has a substantial price tag. The average college tuition in 2024 costs $38,270 per student per year, according to the Education Data Initiative, compared to certificate programs that can range from $1,000 to $5,000 (though some may be more expensive). 

Program outcome. Finally, program outcomes differ. Certificates train students for a specific skill and immediate placement in careers with those skills. College programs provide an extensive and expansive education that can provide opportunities in multiple disciplines within a field. For instance, someone who earns a bachelor’s in economics can enter finance analytics, business consulting, and various disciplines in finance-related fields.

Recommended: A Guide to Choosing the Right College Major

How Long Are Certificate Programs?

Certificate programs can range from a few weeks to two years. San Diego University’s paralegal program can take four to eight months to complete in-person, for example. A cosmetology program at Fullerton College in California requires 1600 hours at a student’s own pace — so the program length depends on you and the field you are planning on studying.

Types of Certificate Programs

The two most common types of certification programs are undergraduate and graduate. They follow compulsory education, and outside of a degree, provide education needed for specific fields such as business, administration, and healthcare.

Undergraduate

Undergrad programs build technical skills and subject mastery via career training programs or one-off courses. Enrollees usually must have a high school diploma for certain courses. They can often be completed in one academic year or less.

Some programs, such as cosmetology, award a license at the end of the program. Ensure your program is formally accredited by the state or professional organization and will prepare you for required licensing exams.

Graduate

Graduate courses enhance a college degree. Students test and earn a certificate to satisfy course completion without earning a degree. Some courses require prior knowledge of a topic. For example, students employed in computer engineering can earn a certificate in a new computer language.

They are offered by universities and colleges, and programs are credit-based. Some programs’ credits can be transferred to other colleges.

Online Certificate Programs

Online certificate programs offer multiple advantages, with convenience being at the top of the list. The online universe has a library of extensive certificate programs, and prestigious courses are accessible to everyday learners. For example, eCornell has a large library of graduate courses. Also, MOOCs (massive open online courses) offer free and paid programs from universities, nonprofits, and for-profit companies.

Online courses also offer flexibility. Asynchronous courses, those that don’t have a specific meeting time, allow students to take a course at their own pace. You can access pre-recorded content anytime and follow class discussion on comment boards. On the other hand, synchronous online programs are more restricted to a schedule. They work like in-person courses where students attend live online lectures, meet due dates, and engage in online class activities.

Finally, online courses may be less expensive than in-person ones. Cutting the commute and certain campus fees can result in cheaper overall prices than in-person learning.

Not all certificate programs offer online learning, however. Hands-on vocations, such as landscaping, plumbing, and electrical engineering, often require apprenticeships to demonstrate material understanding and to meet minimum requirements.

Is a Certificate Program Right for You?

Certificate programs might be a good fit for someone who wants to try a trade career. They are an affordable way to test out vocations without incurring student debt. And college credits from some courses can be put toward a formal college degree if you decide to pursue a bachelor’s.

If you want to learn a new skill for work, graduate certificate courses are one alternative to a master’s or professional degree. For instance, some companies will pay employees to get a Project Manager Professional (PMP) certificate to better equip their employees and improve workforce productivity.

Certificate programs are a great way to kick-start a career change. Some popular certificate programs for career changes include business analysis, law, human resources, and accounting. They are offered by professional organizations, such as the American Institute of Certified Public Accountants for accounting.

Program Type	Certificate Programs	Certification Programs	College Degrees
What do you gain?	Add skills with specific courses for your current job	Fast-track into trade careers or career advancement	Gain career opportunities not limited to trade vocations
How long do you study?	Programs last a few weeks to a few months	Programs last a few months and up to two years	Programs for full-time students last two to four years
How many credits are programs?	15-30 credits, though requirements may vary	4-30 credits, requirements may vary	60 for associate, 120-130 for bachelor’s, and 30-60 credits for graduate programs
This program is good for…	Kick-starting a career change; adding skills to your existing job	Starting a new career (usually in trade vocations); advancing careers into management	Starting a new career or changing a career

Benefits of a Certificate Program

Certificates can propel students directly into the workforce with on-demand skills. According to a Georgetown University study, nearly all certificates (94%) are awarded in career-oriented fields.

Future success in earnings depends on the trade field you choose. For instance, the median earnings for a dental hygienist were $87,530 per year in 2023 according to the Bureau of Labor Statistics (BLS). In comparison, the median wage for cosmetologists was $35,080 in 2023 according to the BLS.

Certificates can also complement a college degree or help a professional acquire skills to advance upward within a field. A marketing professional can expand his or her skillset with an InDesign certificate — often a skill needed for content marketers. And it pays to learn. A total of 77% of Coursera students reported career benefits, such as promotions, raises, and career changes.

Certificate programs also can save time and money. Programs are fewer credits than full degrees and are shorter in length, so cost substantially less than a degree.

Drawbacks of a Certificate Program

Certificates alone can increase income value modestly — and the gains can be diminished in a rapidly evolving workplace. Some studies even show negative returns for certificate holders without a college degree, according to the nonprofit New America.

One BLS report shows bachelor’s degree holders earn median weekly earnings of $1,541, while “some college or associate degree” earners make $1,057 per week on average.

Furthermore, more vocations require a college degree. According to BLS, a bachelor’s degree is required for 174 occupations while an associate degree or a postsecondary nondegree award is required for only 99 occupations.

While certificate programs equip you with skills to land an entry level job after a short time, it may not pay off in the long run.

What to Look for in a Certificate Program

Evaluate programs by accreditation. Quality courses are accredited by the U.S. Department of Education or the Council for Higher Education Accreditation. They might also be verified by certifying bodies within that industry, such as HRCI for Professional Human Resources certification.

Determine flexibility. Some learners might benefit more from in-person courses, while an online course can give busy learners an opportunity to gain valuable expertise and skills. Furthermore, an asynchronous program can provide further flexibility for students who have unpredictable schedules.

Look out for for-profit institutions. For-profits are often synonymous with poor training for exorbitant costs. In short, it can be a scam. The College Scorecard is a government tool that can tell you whether your school is for-profit. On your school’s page, you will see its designation, such as “Private For Profit.”

What Certificate Programs Are in Demand in 2024?

There’s no shortage of demand for certificate programs. The National Center for Education Statistics says the number of certificates awarded increased from 53% to 70% from 2011-12 to 2021-22.

Top certification categories in demand in 2024, according to the International Association of Career Coaches, include:

•   Information Systems and Cybersecurity ($73K to $123K average salary)

•   Project Management ($99K to $122K average salary)

•   Healthcare ($41K to $203K average salary)

•   Finance and Accounting ($72K to $111K average salary)

•   Human Resources ($65K to $128K average salary)

The top paying certifications include:

•   Certified Registered Nurse Anesthetist: $203K

•   Google Cloud Professional Data Engineer: $129K

•   Global Professional in Human Resources: $128K

•   AWS Certified Solutions Architect: $123K

•   Chartered Financial Analyst: $104K

•   Certified Professional in Healthcare Quality: $100K

Coursera’s top 10 courses with professional certification include Google Data Analytics, Google Project Design, Google UX Design, IBM Data Analytics, Google IT Support, Meta Marketing Analytics, IBM Cybersecurity Analyst, IBM Data Science, IBM Data Analyst Capstone Project, and International Business Essentials Specialization. 

How to Pay for Certificate Programs

When deciding how to pay for certificate programs, it’s important to explore all your options. Some might include savings, student loans, and other forms of financial aid.

To get a student loan for a certificate program, you can fill out the Free Application for Federal Student Aid (FAFSA®). The FAFSA will tell you what you qualify for, including federal student loans, grants, and scholarships.

You can also look into private student loans. Private student loans are given by banks, credit unions, and online lenders. While they don’t offer the same benefits and protections as federal student loans, they can be a good option for students who need funding to pay for their certificate program.

Recommended: Guide to Student Loans for Certificate Programs

The Takeaway

Certificate programs can start, enhance, or change careers for learners. They can prepare students for immediate placement in a specific trade without a college degree. They can also boost your career by providing specialized skills, enhancing your qualifications, and demonstrating expertise to employers.

Certificate programs are less expensive and shorter in duration than college degrees. To pay for a certificate program, you can look into employer assistance programs, use cash savings, or rely on federal or private student loans.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

What does a certificate program mean?

A certificate program is a short-term educational course designed to provide specialized skills or knowledge in a certain field. It typically takes a few months to two years and is aimed at enhancing career opportunities, professional development, or gaining expertise in a particular subject.

Is a certificate program worth taking?

A certificate program can be valuable for gaining specialized knowledge quickly and affordably. However, it’s important to consider the program’s relevance to your field and potential return on investment.

What are the benefits of attending a certificate program?

Attending a certificate program offers three key benefits: It provides specialized skills and knowledge in a short time, enhances your qualifications to improve job prospects, and offers a flexible, cost-effective alternative to a degree, allowing you to advance your career or switch fields efficiently.

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Photo credit: iStock/PeopleImages

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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If you’re heading off to grad school, you’re probably not a newbie at the financial aid process after your years as an undergraduate. You might even have a few things to say about the increase in graduate student loan borrowing.

Out of the over $1.74 trillion in student loan debt in the United States, dollars borrowed by graduate school students are rising more quickly than undergraduate debt.

However, it’s a mistake to assume that graduate student loans are the same as undergraduate loans. There are actually significant differences between the two, and knowing those differences can be the key to saving money on your grad school debt in the long run. 

Keep reading to learn key differences between undergraduate and graduate student loans.

What Does Undergraduate Mean?

In the context of student loans, an undergraduate refers to someone who has not yet completed their bachelor’s degree.

An undergraduate student is someone who is pursuing their associate or bachelor’s degree.

Associate degrees are generally offered at two-year community colleges. A bachelor’s degree generally takes about four years to complete and is often completed at four-year colleges or universities. There is a wide variety of bachelor degree programs including history, English, engineering, math, chemistry, and more. 

Three of the most common types of bachelor’s degrees include Bachelor of Arts, Bachelor of Fine Arts, and Bachelor of Science. Program requirements for undergraduate degrees will vary by institution.

Recommended: A Guide to Choosing the Right College Major

What Does Graduate Mean?

A graduate is someone who has successfully completed a specified course of work. In terms of a graduate student, it’s any student who has completed their bachelor’s program and is working toward a more advanced degree. 

Graduate degrees include master’s, doctorates, PhD’s, MBA’s, and JD’s. Depending on the program coursework, a graduate degree can take anywhere from one to six years to complete. Law students, medical students, and PhD candidates are all examples of graduate students.

Recommended: Applying to Graduate School: Smart Tips & Strategies 

Differences Between Undergraduate and Graduate Programs

Beyond differences in coursework, there are differences when it comes to student loans and financial aid options for undergraduate and graduate students.

1. Dependency Status

As a graduate student, you’ll still need to complete the Free Application for Federal Student Aid (FAFSA®) to qualify for federal student aid. However, you no longer need to include financial information about your parents on the form.

That’s because students who are pursuing either a master’s or doctorate degree are considered to be independent students.

There are a couple of key benefits associated with being an independent student. First, it helps streamline filling out the FAFSA. Second, as an independent student, you’ll likely report much less income because your family’s earnings generally are no longer considered when financial aid eligibility is calculated, which could potentially give you access to additional aid options.

There are circumstances where undergraduate students can also be considered independent, but it’s usually more common with graduate students.

2. Interest Rates on Federal Student Loans

The 2024-25 federal student loan interest rates for graduate and professional students are 8.08% for Direct Unsubsidized Loans for graduate or professional students and 9.08% for Direct PLUS Loans — much higher than the 6.53% interest rate on federal undergraduate student loans.

Graduate students can use federal student loans to pay for qualifying education expenses, including tuition, fees, college textbooks, and living expenses.

PLUS Loans are funded by the U.S. Department of Education and require a credit check, although the credit requirements are not as stringent as they would be with a private lender. At 9.08%, they have the highest interest rate of all the federal student loans.

Federal loans also have fees that should be factored into the total cost of borrowing. For Direct Subsidized and Unsubsidized Loans, the loan fee is 1.057%. For Direct PLUS Loans, the fee is 4.228%.

3. Loan Type

Grad school federal loans start accruing interest while you’re a full-time student, unlike subsidized loans for undergraduates.

For example, say you borrowed $20,000 in Direct Unsubsidized Loans (for graduates) to cover the cost of tuition when you started the program. When you factor in the current disbursement fee of 1.057%, you would have received approximately $19,789.

Since this loan type is unsubsidized, it will accrue interest while you attend school. And even though you received $19,789, interest will accrue based on the loan total of $20,000. If the program is two years long and you made no payments during that time, the loan would have accrued approximately $3,233 (assuming the interest rate stays the same 8.08% for those two years). For undergrads with subsidized loans, the interest clock doesn’t start until after graduation.

4. Borrowing Limits

Typically, graduate students can borrow $20,500 annually in Direct Unsubsidized Loans, although there is currently a lifetime cap of $138,500 when undergrad loans and graduate school Direct Loans are combined. If you’re in a qualifying health field, you may have a higher lifetime limit, potentially up to $224,000.

Compare that to annual limits for undergraduates, and they’re typically capped at $5,500 during year one; $6,500 for year two; and $7,500 for subsequent years, with a total availability of $31,000.

Having said that, although graduate students have more flexibility in how much can be borrowed, it can be challenging to pay back those higher amounts of debt.

Recommended: 6 Strategies to Pay Off Student Loans Quickly

5. Interest Rates on Private Student Loans

Private student loans aren’t backed by the federal government; they’re issued by private lenders or banks.

If you’ve already established a solid credit history and/or have steady income coming in, those are important cornerstones that may help you qualify for more competitive rates on private student loans. This is in contrast to the typical undergrad, who may be new to credit and lending entirely, and doesn’t usually have a well-paying, full-time job.

Keep in mind, though, that private student loans don’t necessarily offer the same borrower protections as federal student loans — things like income-driven repayment plans or loan forgiveness options. Because of this, federal loans are usually prioritized over private student loans.

Recommended: Private Student Loan Guide

6. Student Loan Refinancing

While anyone with higher education debt can apply to refinance student loans, there are a couple reasons why this option tends to be more popular with grad students.

First, in order to qualify to refinance loans at a lower interest rate than what a borrower may currently have, a strong credit history that includes a positive track record of paying debts is important — and proof that you make enough money to pay back the loan (among other factors that will vary by lender). Depending on a graduate student’s background, there is a chance that they might be viewed as a more stable lending choice than an undergraduate.

Additionally, some graduate programs offer the potential for students to increase their earning potential after graduation, which also could be appealing to private lenders.

Student loan refinancing won’t be the right option for everyone. Federal loans come with a variety of protections and benefits, like income-driven repayment plans and loan deferment. When you refinance a federal loan, it becomes a private loan, and will no longer qualify for any federal benefits.

7. Federal Grants

Even if you were eligible for a federal Pell Grant the last time around, you can’t count on that for graduate school. A Pell Grant is a need-based grant that does not need to be repaid, and is typically awarded only to undergraduate students.

There are a variety of other opportunities available to grad students to help them finance their education, including some grad school scholarships, other grants, and fellowships. Grants are generally offered based on financial need, while fellowships are awarded based on a student’s academic performance and research.

Recommended: Grants for College

Thinking Outside the Box: Paying for Graduate School

When you think about paying for graduate school, it’s natural to consider student loans, but there are additional avenues likely worth pursuing. For example, your school of choice may offer scholarships, fellowships, and grants.

Typically, the college will use the information in the FAFSA to decide what funding, if any, they can offer you. Other times, though, there may be separate applications unique to your school; you can ask for specifics at the financial aid office. Sometimes, the award might be small; other times, it might be full tuition reimbursement.

Becoming a Teaching or Research Assistant

Some graduate students work on campus as teaching or research assistants. These opportunities could offer the opportunity for students to expand their skill set while earning some income.

Working Full-Time as a Grad Student

If you’re pursuing a graduate degree while working full time, you can check with your employer to see if they offer a tuition reimbursement plan. If they do, the program will have its own parameters and processes.

Sometimes, if you accept funds from this program, you’ll need to stay at the company for a predetermined amount of time; other times, they might fund only certain degrees.

Finding Scholarships

You can also use databases like FastWeb or SoFi’s scholarship search tool to see if there are private scholarships available that you might qualify for.

Want access to more student loan resources? Explore our student loan help center to help guide you in your debt repayment!

The Takeaway

Graduate students are those who have completed some type of bachelor’s program and are pursuing an additional degree, such as an MBA, master’s, PhD, or doctorate. Graduate students may be eligible for different types of federal loans and financial aid than they were as an undergraduate. However, federal student loans for graduate students typically have a higher interest rate and fees than options for undergraduate students.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

Do graduate students borrow more money than undergraduate students?

Yes, graduate students typically borrow more money than undergraduate students due to higher tuition costs and increased borrowing limits. Federal Direct PLUS Loans allow graduate students to borrow up to the full cost of attendance, leading to larger loan balances compared to undergraduates who face stricter borrowing caps. The current lifetime cap for graduate student loans is $138,500 (this includes loans from undergrad, too), but may be higher for those in a qualifying health field.

Do graduate student loans have higher interest rates?

Yes, graduate student loans generally have higher interest rates than undergraduate loans. For the 2024-25 school year, federal undergraduate student loans have an interest rate of 6.53%. For graduate students, that rate is 8.08%. Direct PLUS Loans have a rate of 9.08%.

What is considered an undergraduate loan?

An undergraduate loan is a type of student loan specifically designed for students pursuing a bachelor’s degree or associate degree. These loans, which include Federal Direct Subsidized and Unsubsidized Loans, typically have lower interest rates and borrowing limits compared to graduate loans, and are often the first type of loan students encounter.

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SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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Deciding how to invest money in your 20s can seem overwhelming at first; many people have differing opinions or goals, and it’s hard to know where to start. But remember that you don’t need to have a lot of money upfront to be a successful and savvy investor.

Perhaps the most important thing is to start investing early, even if your initial investments are small. Here are a few different strategies for investing money in your 20s.

Think About Financial Goals

When determining your financial goals, you may want to break down short-, medium-, and long-term milestones. You want to ask yourself what you want from your money and figure out when you’ll need to use the money. For example, the money you save for a medium-term goal, like a down payment on your first home, should be treated differently than the retirement savings you won’t touch for 40 or more years.

So, you may want to start buying stocks right away, but you may also want to give some strategic thought as to how that may fit into your overall financial goals.

If you have not earmarked savings for a specific financial goal, take some time to think about what purpose you’d like to apply it to. A great first saving goal is to have three to six months of living expenses in an emergency fund. After that, it might be good to turn your attention toward savings and investing for longer-term goals, like retirement.

Decide Where to House Your Money

When deciding how to invest money in your 20s, it can help to think about immediate, mid-term, and long-term financial needs. Once you have outlined some money goals, you could consider setting up your accounts. The type of account you open often depends on when you need the money.

Where to Put Immediate Money

Food, bills, rent, and everything else you must pay for on a month-to-month basis are immediate needs. Often people keep this money — along with a cushion so as not to overdraft their account — in an online bank account. These types of accounts allow you to withdraw money instantaneously, generally without penalties, making them ideal for your immediate financial needs.

Where to Put Mid-term Money

Mid-term money is any money you might need in the next couple of years, such as a travel fund, wedding fund, or home down payment savings. It might make sense to keep this money in a high-yield savings account, which provides a better return on your money than traditional savings accounts.

High-yield savings accounts, along with other cash equivalents like certificates of deposits (CDs) and money market accounts, are usually considered to be lower-risk investments (though CDs are not helpful for emergency funds because of the early termination penalties).

Where to Put Mid- to Long-term Money

For money you’ll use in five to 20 years, you may be prepared to take slightly more risk than a high-yield savings account. You might choose to keep the money in your high-yield savings account or in CDs, or a online brokerage account where you can invest that money in stocks, bonds, mutual funds, or other asset classes. You can also do a combination of the different types of accounts.

Longer-term savings options, like a tax-advantage 529 plan, can also be appropriate if you’d like to start planning for higher education needs for current or future children.

Where to Put Long-Term Money

Think of long-term money as cash you won’t need for several decades. A retirement account is a great example of an appropriate place to hold long-term money. Retirement plans like a Traditional IRA, Roth IRA, or a 401(k) account can offer significant tax benefits.

💡 Ready to invest in your retirement? Consider opening a Traditional or Roth IRA with SoFi.

Potential Assets to Invest in During Your 20s

One important thing to understand about investing in your 20s is the tradeoff between risk and reward when implementing your investing strategy. You cannot have one without the other. With this risk and reward calculation in mind, you need to determine what asset classes you might consider when investing in your 20s.

Stocks

A stock is a tiny piece of ownership in a publicly-traded company. When you invest in a stock, you could earn money through capital appreciation, dividends, or a combination of the two.

Stocks can be volatile because prices fluctuate according to supply and demand forces as they trade on an open exchange. Even though stocks can be volatile and experience losses, they tend to provide positive returns over time. The S&P 500 index has had an average annual growth rate of 10.3% from 1957 through the end of 2023.

Bonds

Although not risk-free, experts generally consider bonds less risky (though not risk-free) than stocks because they are a contract that comes with a stated rate of return. Bonds backed by the U.S. government, called treasury bonds, are the safest within the category of bonds because it is unlikely that the U.S. government will go bankrupt.

Bonds are debt investments, meaning investors fund the debt of some entity. The money you earn on that investment is the interest they pay you for borrowing your money. In addition to treasuries and corporate bonds, there are municipal bonds, which state and local governments issue, and mortgage- and asset-backed bonds, which are bundles of mortgages or other financial assets that pass through the interest paid on mortgages or assets.

Mutual Funds and Exchange-Traded Funds

Some investors might want to utilize mutual funds or exchange-traded funds (ETFs) to gain exposure to certain asset classes.

A fund is essentially a basket of investments — stocks, bonds, another investment type, or a combination thereof. Funds are helpful because they provide immediate diversification: safety against the risk of having too much money invested in one stock, sector, or any other single asset.

Funds are either actively or passively managed. A fund that is passively managed is attempting to track a specific index. An actively managed fund is maintained with a hands-on approach to determine investments in a portfolio. ETFs tend to be passively managed, but there are many actively managed ETFs funds on the market. Mutual funds can be either passively or actively managed.

Tips for Investing In Your 20s

Once you’ve become familiar with the basics of investing, it’s time to put that knowledge into action. These tips can help you shape a strategy for how to invest money in your 20s and beyond.

Gauge Your Personal Risk Tolerance

One of the key things to remember about investing in your 20s is that time is on your side. You have a significant time horizon window to allow your portfolio to recover from bouts of inevitable stock market volatility. Because of this, you could take more risks with your investments to try and achieve higher rewards.

Getting to know your personal risk preferences can help you decide where and how to invest in your 20s to achieve your investment goals. It’s also important to understand how risk tolerance matches your risk capacity and appetite.

Risk tolerance means the level of risk you’re comfortable taking. Risk capacity is the level of risk you prefer to take to reach your investment goals, while risk appetite is the level of risk you need to hit those milestones. When you’re younger, playing it too safe with your portfolio might mean missing out on significant investment returns.

Know the Difference Between Asset Allocation and Asset Location

People often invest in a combination of stocks and bonds, which is easy to do using mutual funds and ETFs. One strategy for investing in your 20s is to invest a higher allocation of your long-term investments in stocks and less in bonds, slowly moving into more bond funds the closer you get to retirement. This big picture decision is called asset allocation.

But asset allocation is only part of the picture. One might also consider asset location: the types of accounts where you’re putting your money, like savings accounts, an online brokerage account, a 401k, or an IRA.

Asset location matters when it comes to investing money in your 20s because it can maximize tax advantages if you’re utilizing a 401k or IRA. But these retirement accounts also have restrictions and penalties for withdrawing money. So if you want to be able to access your investments quickly, an online brokerage may be a complimentary investing account.

Take Advantage of Free Money

One of the simplest ways to start investing in your 20s is to enroll in your workplace retirement plan like a 401k.

Once you’ve enrolled in a plan, consider contributing at least enough to get the full company match if your employer offers one. If you don’t, you could be leaving money on the table.

And if you can’t make the full contribution to get the match right away, you can still work your way up to it by gradually increasing your salary deferral percentage. For example, you could raise your contribution rate by 1% each year until you reach the maximum deferral amount.

Don’t Be Afraid of Investment Alternatives

Stocks, bonds, and mutual funds can all be good places to start investing in your 20s. But don’t count out other alternative investments outside these markets.

Real estate is one example of an alternative investment that can be attractive to some investors. Investing in real estate in your 20s doesn’t necessarily mean you have to own a rental property, though that’s one option. You could also invest in fix-and-flip properties, real estate investment trusts (REITs), or crowdfunded real estate investments.

Adding alternative investments such as real estate, cryptocurrency, and commodities to your portfolio may improve diversification and could create some insulation against risk.

Learn more: What Are Alternative Investments?

The Takeaway

Learning how to invest money in your 20s doesn’t happen overnight. And you may still be fuzzy on how certain parts of the market work as you enter your 30s or 40s. But by continually educating yourself about different investments and investing strategies, you can gain the knowledge needed to guide your portfolio toward your financial goals.

One thing to know about investing in your 20s is that consistency can pay off in the long run. Even if you’re only able to invest a little money at a time through 401k contributions or by purchasing partial or fractional shares of stock, those amounts can add up as the years and decades pass.

If you’re ready to start saving and investing for your financial goals, the SoFi investment app can help. With SoFi Invest®, you can begin building a portfolio of stocks, and ETFs for as little as $5 to meet all the critical financial goals and milestones in your life.

Find out how SoFi Invest® can help you take a big step towards reaching your financial goals.

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SoFi Invest®

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