5 Easy Investment Tips for Young People

Featured Image Caption: Investment Tips for Young Adults

An investment can work brilliantly for you if you start planning strategically at a young age. The key is to invest in opportunities and assets that net you the maximum value for your money. However, jumping into it without any perspective can rob you of your savings as well.

Here’s a list of 5 critical investment tips that you’d want to keep in mind before you turn 30:

1. PLAN YOUR INVESTMENT GOALS

• It is essential to chalk out a broad financial plan and decide the “why” & “how” for every rupee you invest. Debt instruments like bonds, debentures, leases, certificates, bills of exchange, promissory notes etc. can be used to meet short-term goals.
• Equity can help in fulfilling long-term goals and a combination of debt and equity instruments can be used for medium-term. Mutual funds offer both options to investors.

2. ANALYSE THE RISK-RETURN PROFILE

• Remember to invest only in those instruments whose risk-reward ratio is in sync with your risk appetite. The risk premium may look very lucrative, but a sound investor should not become greedy. It’s important to gain as much perspective as possible about the worst possible outcomes, to optimise your returns from time to time.
• High volatility in the price of securities is a sign of higher risk – so an investment in such securities should represent a limited proportion of your portfolio if you’re risk averse. This risk may be balanced with investments in blue-chip companies or debentures that have less risk of capital loss.
• Several instruments that offer exponential rate of returns can be risky to the point that they could lead to loss of your principal. It is important to understand that the risk tolerance limit is different for different individuals. For e.g., young investors could put a higher fraction of their savings into market linked securities like the stock market, and in later years increase the share in debt funds, FDs or PF for financial security.

Investment Tips for Young Professionals

3. USE THE POWER OF COMPOUNDING

• Compounding should be exploited by reinvesting your earnings to generate more returns on an asset. It is better to start investing as soon as possible, so that you have more to reinvest over time.
• Compounding can be done via Systematic Investment Plans (SIP), specific mutual funds (in which the interest or dividends received can be reinvested and be used to buy additional units), and many other ways. When your principal is combined with the re-invested income, your investment can grow at a faster rate.
• To be safe, you could allocate a small portion of your savings to fixed deposits and earn guaranteed interest on the amount after maturity. In times of emergency, FDs can be liquidated before maturity too.
• The return on FDs or PPF might be less as compared to some other instruments, so you may want to consider mutual funds as a better bet for compounding. It’d be best to not have a significant portion of your portfolio in FDs and instead use more dynamic options like equity mutual funds.

4. DIVERSIFICATION

• Diversification is a key tenet of a sound investment strategy, used to reduce the overall risk and smoothen the earnings curve.
• It can be done by investing in different asset classes across industries like resources (iron and gold, etc.), financials (banks), communications, energy (oil and gas), technology and others. It assists in balancing the ups and downs across sectors and reduces volatility in your portfolio. It can also maximise returns because the response of different sectors varies with every event.
• You can either choose to diversify yourself or choose from mutual funds which diversify funds across asset classes and industry sectors.
• Mutual funds are managed by professionals who have the technical expertise, so it is an ideal investment for those who lack technical knowledge or those who don’t have the time to regularly analyse their portfolio.
• The top mutual funds offer solid returns to their investors and some may even offer periodic dividends. There are dozens of mutual funds available in the market however, so to narrow down your investment choices you can visit https://www.clearfunds.com/best-mutual-funds-2018, which has a list of the best mutual funds available in the market.

5. PENSION SYSTEM

• A pension is a long-term savings plan. There are different types of pension schemes which offer either a corpus or a regular income stream after retirement. Regular contributions in such funds can provide financial security in old age & also offer tax relief during your working age.
• Pension schemes assign different weights to equity shares, bonds, government securities and other investment options. You can choose the one that suits your risk appetite and financial goals.

Investment Tips for Beginners

An investment (and its strategy) is a continually evolving process for every investor. It is important to be patient & not panic in challenging times. Keeping all your eggs in one basket can increase your risk. On the other hand, returns can be maximised by investing in both fixed-income and market-linked investment schemes. A combination of investments with your financial goals, taxation and time horizon in perspective assists in realising the power of compounding monetary returns.

By Dinesh Mittal
who is a seasoned writer and has over the years contributed quality content on various high-profile websites. He has particularly excelled in niches like Fashion, Business, Entrepreneurship, Education etc. His professionalism, four year’s experience, and expertise make him one of the most sought-after content writers in the field.

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