Time is the biggest asset to an investor. The longer the investment horizon a person gets, the bigger corpus he or she can build. This is why we always suggest young adults start investing as early as possible – irrespective of the investment amount. With this premise in mind, let us use this space to provide some practical and feasible investment tips for young adults.
Investment Tips For Young Investors – The Do’s
When it comes to investing in your 20s, there are some best practices that you should follow. Remember, we don’t know you. Use these tips, but tweak them as per your unique requirements.
- Invest In Skill Development
What is the basic thing that you need to get a good return on your investment? A large capital, a high-paying job, or a great business. And the requisite to having all these is to be highly skilled and knowledgeable. Hence, young investors must invest in skills themselves – invest in themselves. Only then can they have the requisite capital to begin their investment journey. Remember, investment in knowledge earns the best returns.
- Start With Investing In Mutual Funds and ETFs
Most young investors don’t have the necessary time needed to gain a deep knowledge of the stock market and the broader economy. Hence, they should start their investment journey with mutual funds and ETFs. Why? Because trading or investing in individual stocks requires a deep knowledge of how the stock market works, how companies function, and how economies function. Also, many young investors may not have the risk appetite to start investing in equities directly. With Mutual Funds, it is the fund managers that manage your investment so you don’t have to invest your time. Mutual funds are also flexible and you can begin with smaller amounts through SIPs in a disciplined manner. Moreover, investing in index funds – with a long horizon – can be a safe bet to increase your wealth with little pain and effort.
Morgan Housel, author of ‘The Psychology of Money’ reports that 85% of the active large-cap fund managers failed to beat the S&P 500 index over the 10-year period ending 2019.
- Invest with a Goal
Invest your money after understanding your goals and objectives. Understanding your financial goals, risk appetite, and investment horizon is the key to investing your money successfully. As you understand your goals and risk appetite, you will also be able to narrow down your investment choice. For instance, if you are investing for your next year’s vacation, the best vehicle must be one that doesn’t have a very high risk and can be easily liquidated. Also. If you are planning to save for this monthly, the vehicle should allow monthly contributions. Hence, we can narrow down the choice to debt mutual funds and recurring deposits.
Investment Tips For Young Investors – The Don’ts
Young investors must stay away from some decisions that are detrimental to their financial success. Let’s talk about three such decisions.
- Don’t Listen To Advice From People Who Have Different Goals Than Those of Yours
Every investor is a unique human being with unique dreams and a unique life history. Financial gurus who help you make proper financial decisions don’t know you. So, they hardly know why you are in the market, what drives you, and what makes you scared. This is why, when you listen to investment advice, treat it as generic advice. Verify if the advice is actually in sync with YOUR financial goals. Don’t make the mistake of using the advice of a person who has a completely different investment objective than yours.
- Don’t Invest In Risky Assets Like Crypto. It’s Not Worth The Risk:
As you start meeting new people in your 20s and joining new forums, there will be those who will try to push you towards crypto and other such risky assets. And the greed of getting huge returns within a year or less is too hard to resist. But here’s news for you: 73% of crypto investors lost money – as of 2022. Crypto and other risky assets are mostly scams operated by cash-rich scammers (in the crypto world, they are called whales). It is the smaller investors like you and me who will invariably lose money if we invest in such assets.
The same is the case for Futures and Options. Of course, FnO isn’t a scam, but it is highly speculative. As per SEBI data, 9 out of 10 FnO traders lose money.
- Don’t Invest Until You Do Your Due Diligence:
That doesn’t mean you have to spend hours performing research on stocks, mutual funds, or other investible vehicles. However, you must check the background of the mutual fund or individual stocks and try to find out the risks associated with it. Remember, you are putting in your hard-earned money– know the risk, return, liquidity, and taxation profile of every investment vehicle you invest in. You’ll thank yourself later.
In The End…
Investing consistently can help you meet financial goals and amass wealth over the long run. Start building the habit of saving money right from the start. Start early, stay disciplined, and invest as per your goals. Finally, don’t hesitate to seek the help of a SEBI-registered investment advisor. An advisor can help you make timely investment decisions and avoid costlier mistakes.
If you have a question, share it in the comments below or DM us or call us – +91 9051052222. We’ll be happy to answer it.