When you are Young you have lot of aspirations. An early rising career with luxuries of life is a dream to achieve. For some it makes them restless. While you are living in your present, there is less thought given to the future which is distant away. Very low attention is given to investing for long term goals as there is a perception that time is on your side.
Ideally, when you are young and starts your career, you should also start investing. The power of compounding works best when you stay invested for long. But many young individuals get confused on selecting a good investment option. Unaware on the various avenues they get lured to options which may not meet their requirement.
Here is a list of various investing options for young individuals and the approach they should take :
- Equity– It will be difficult to neglect equity for your long term investment. Also, the impact of inflation creates a need for investing in avenues which can generate higher real returns. Equity is a reflection of the performance of the companies and so it will be hard to consider a scenario when in the long term these do not perform. Although investing directly in shares is a good alternative but you need time and expertise along with good capital to do this. Mutual Funds are an ideal route to invest in this asset class where the option of Systematic Investment Planning helps in taking exposure in equity market even with a smaller amount. But here also selecting the right mutual funds scheme is essential. For any young investor who lacks expertise, a balanced fund which has a mix of equity and debt, is a good starter. Once you have enhanced your awareness, you can move to other categories. Slowly build your core portfolio which is meant for meeting your long term objectives. Ideally, it will comprise of categories within equities which are less volatile and consistent. Large Cap and multi cap mutual funds are some of them to be added here.You can take help of online research or look for a good professional even if he charges you some fee for the advise. Keep your expectations reasonable and avoid taking short term view for quick bucks. Equities are more lucrative for Wealth Accumulation then just for earning returns.
- Debt: Even when you are young and have higher risk taking ability, you cannot put all your money in one basket. So diversifying your investments is necessary for which debt instruments play a vital role. The lesser volatility in these instruments ensure that you have a downside protection to your entire investment portfolio. How much exposure you should give to debt will rely on few factors such as dependents, your risk tolerance, savings etc. The choice of a particular debt instruments will rest on taxability of your income but there are few which are good for all category of individuals and ideal for long term goals. PPF is one of those small savings schemes investments which you should plan to contribute for your long term goals. EPF will be there with some of you and your contribution will keep on enhancing with your income which will help you in accumulating for your retirement. Both of these are good investments to be part of your core portfolio. Debt Mutual funds are a good alternative when it comes to tax efficient returns. For long term goals, such as retirement, a gilt or an income fund is a considerable option to diversify your core portfolio. FMPs, Money Market or Short Term Mutual Funds are schemes which gives you variety of options for your short term needs. Traditional instruments like FDs and RDs are good for short term avenues but their inclusion in your portfolio will rest on your tax slab. So evaluate and choose your category when you are starting your investments.
- Insurance– As young you will be lured for insurance cum investment options from your bankers, agents or any other intermediaries. You will be told to reap the dual benefits of tax savings and the growth from market exposure. But any combo is a costly affair which may not meet your requirement. You may not need any insurance at young age if you do not have dependent or liabilities. So ensure you do not fall prey to such ideas and keep your investments seperated from insurance.
- Gold– It’s in our tradition and so it’s difficult we do not think about it. Lately it has been more treated as a trading instrument then investment. So you might also be attracted for the returns. But investing in gold has its own advantage and disadvantage which need to be understood clearly. Gold is more considered as security for bad times and so your parents preferred physical gold. You can too invest in this instrument but opt for the cost effective means like ETF than relying on traditional choice of physical gold. Expect reasonable returns from this avenue and do not expose yourself to more than 5-10% of your investible surplus.
- Bonds– There are lot more options which has emerged in last few years such as Tax Free Bonds and Non-Convertible Debentures offering higher returns to investors. But they may not be for you. Tax Free Bonds giving fixed interest annually is good for a regular income seeker. But when you are young, you are primarily investing for wealth accumulation in the long term and aim to beat inflation. So a tax free bond will not fall in your requirement list. On other side NCDs have their risk associated and not every in the market will be an investing proposition.
- Education– There is no better investment than education. Since you will be the decision maker in all your investments, your self-awareness is very important for not getting carried away by any wrong advise. As young you have a zeal to learn and time is on your side so read books, follow blogs and attend seminars/sessions where you are taught about investing. Ask your queries even if it may sound very basic.You are asking for your benefit. Al these initiatives might not make you an expert but surely will help you in avoiding mistakes whenever you take any financial decision.
Most of the investments described are ones where investing begins. They do not require higher contributions and are fairly simple products. With changes in life you need to review these as your requirement will change. But its always wise to resist your temptations and do not jump to any investing decision without analyzing your requirement. If needed, take the help of professionals even if you have to pay a small fee. It wiser to pay now then to commit mistakes which can impact your tomorrow.
How you have been investing? Are your financial decisions linked with your requirement? Do you spend time on educating yourself?
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