Why do you need to start your investment journey in the 20s?
With great investment, comes great returns. Investment is not a chore but should be a habit and I feel that once it becomes a habit, it can make one a millionaire. We all know Warren Buffett, a world-class investor, but very few of us know that he started his investment journey at the age of 10.
One thing I like about us is that we know all about exponential growth and compounding, but none of us take it seriously when we consider investments. We just look for quick bucks that leads us to investing directly in harsh equity and the crypto market currently. This is, frankly, not the correct way to invest.
The days of storing your savings under a mattress are over. Cash under your mattress can’t even keep up with inflation, let alone grow enough for retirement. Investing when you’re young is one of the best ways to see solid returns on your money. That’s thanks to compound earnings, which means your investment returns start earning their own return. Compounding allows your account balance to snowball over time.
As per the World Inequality Report, 2021, 50% of Indians hold no assets in their own name. Indians are incapable of generating wealth with the per capita is because of lack of financial planning.
The first step in beginning your journey is deciding how much to invest.
How much you should invest depends on your investment goal and when you need to reach it. One common investment goal is retirement. As a general rule of thumb, you want to aim to invest a total of 10% to 15% of your income each year for retirement.
Opening an investment account should be your second step. You will need to submit the following documents to start a trading account: A passport-size photograph. A copy of your PAN card. Identity proof such as Aadhaar card, passport, voter ID card, driving licence, PAN card or any other authorized photo identity.
With your investment options ranging from stocks to mutual funds to property to gold, there are a diverse range of investment options. Each has its own set of pros and cons based on certain factors like volatility and risk appetite of the investor. As a beginner investor, it is always advised to invest in low risk investments like mutual funds.
Post picking an investment option, it is important to craft an investment strategy depending on your saving goals, how much money you need to reach them and your time horizon.
If your savings goal is more than 20 years away, almost all of your money can be in stocks. But picking specific stocks can be complicated and time-consuming, so for most people, the best way to invest in stocks is through low-cost stock mutual funds, index funds or ETFs.
If you’re saving for a short-term goal, and you need the money within five years, the risk associated with stocks means you’re better off keeping your money safe, in an online savings account or low-risk investment portfolio.
Diversification is considered to be the only free lunch in investing. As a beginner investor, by investing in a range of assets, you reduce the risk of one investment’s performance severely hurting the return of your overall investment. You could think of it as financial jargon for “Don’t put all of your eggs in one basket.” It is integral in imbibing diversification as the soul of your portfolio.
Investing is a commitment of resources now toward a future financial goal. There are many levels of risk, with certain asset classes and investment products inherently much riskier than others. However, essentially all investing comes with at least some degree of risk.
For this reason, a key consideration for investors is how to manage their risk in order to achieve their financial goals, whether they are short- or long-term. All the best with investing for a better future!
