Like health and education, investment is a key life skill which plays a pivotal role in shaping one’s financial future.
Like health and education, investment is a key life skill which plays a pivotal role in shaping one’s financial future. Hearteningly, we have seen a significant rise in the number of young investors across the globe in the aftermath of the pandemic. During 2022-2023, one-fourth of the total MF folios were attributed to young people in the age group of 25 to 35.
Having said that, lured by the promise of higher returns, young investors often fixate on short-term options like intraday trading, scalping, positional trading, and also cryptocurrency. According to global research reports, 54% of the Gen Z brigade are crypto investors.
Here’s a friendly primer on the basic concepts and paradigms of the investment landscape to help young champions shape their financial future in the guiding light of actionable insights.
It all begins with a Plan
At the outset, it is important to define your life goals which would help define your investment goals. This homework will help you make the most of investment universe comprising stocks, bonds, currency, commodities, real estate, gold and other asset classes.
A well-researched plan defines your financial needs based on key life milestones, income and net worth, mandatory obligations like loan instalments and emergency money, and the risk appetite (amount of risk you are willing to take)
Diversify to manage risk and maximize reward
Risk denotes uncertainty of returns. Low-risk plans offer relatively low yields but are less susceptible to market fluctuations. High-risk strategies offer potential for higher returns, but also higher volatility.
As per media reports, only 10% of Indian investors have a diversified portfolio. This is a risky proposition. One should strike a judicious blend of fixed-income investments like bonds and moderate to high-risk investments like equities to balance out growth and stability.
Think Long term
Long-term investing is an effective strategy for building sustainable wealth over time. Short-term investment strategies focus on quick gains marked by higher trading frequency and lower holding periods.
Investors tend to hold their investments only for a 2-3 year span which is not adequate time to earn significant returns. Markets are cyclical, but if the investments are fundamentally sound, the long-term story stays intact.
‘Know’ before you Invest
One should understand the dynamics of any asset class before committing funds to it. It is imperative to study the pros and cons of each asset class guided by research reports and expert advice. Don’t invest based on hearsay or peer pressure. Remember, renowned investors have achieved remarkable success by investing in familiar sectors.
If you know your investments, you will also have a better understanding of the cyclicality associated with them. With this better understanding, one will not have a knee-jerk reaction to short-term volatility arising out of various factors which are not directly impacting the investment.
Take expert assistance
Investment is all about chasing risk-adjusted returns. It involves diversification to various asset classes, understanding the risk-return reward matrix, the liquidity associated with asset classes, and the importance of time that needs to be spent with your investments. It is a complex mix and hence it is always prudent to seek an expert’s assistance while investing.
Summing up
The five mantras mentioned above can help young investors fetch sustainable returns on their investments. Indeed, this is the right time to invest in your future such that you secure financial comfort in your autumn years.
