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10Ten investing mantras for youngstersJul-19-2019

Ten investing mantras for youngsters

Blog by – Mr. Dhruv Ajmera
India is a nation of young people. Millennials make for almost half of ourworking population while two-third individuals are less than 35 years old.  It is safe to say that the spending, saving and investing patterns of these individuals would go a long way in shaping up the medium and long term growth potential of India. Greater awareness about investing in mutual funds and good stock market advice is essential for this section of the society. Actively participating in stock markets and mutual funds should be high on the agenda of youngsters when it comes to managing and growing wealth.

Here are a few insights in this regard:
Understand basics of investing process: It makes sense to learn the basics of the investing process at the early phase of your working life because it helps in minimizing errors and leads to the much needed clarity of thoughts over a period of time. One needs to get acquainted with concepts like time value of money, various investing avenues and the relationship between risks and returns.

Take stock of your career/life goals: As a young person with plenty of working life ahead, one has to take a stock of career goals and the long term life goals as well. This will make it easier for you to plan your investing journey. Get hold of a good investment advisor as early as possible.

Think about future expenses: Please be aware that your future expenses would be on the rise as time goes by. This is because the time value of money would be on a decline because of inflation. In an emerging economy like India, moderate inflation would always ensure that prices rise across all spectrums over a period of time. Investing in stock market or mutual funds will help you save money to protect you from the inflation.

Consider family circumstances: This is a critical and often sidelined area when it comes to personal finance by the millennials. Think about increasing family responsibilities and also keep in mind rising medical costs in the future. This becomes much more important when it comes to decisions like buying a house. Streamlining your investments after giving the much needed thought to your family needs and expectations would help you in finalizing the ideal plan for your finances. 

Find a good investment advisor: Rather than falling prey to share market tips from friends or relatives or various services provided providing stock market tips without sound backing up of research, find a good investment advisor who can help you draw a well-rounded financial plan best suited for you.

Understand importance of staying invested: Please understand that stock markets work at their best over the long term. Long term investing has been hugely idealized by investment legends like Warren Buffet.  Buying good companies at attractive valuations and holding stocks for a long period of time has been a tried and tested approach to stock market investment.

Use mutual funds to your advantage: A mutual fund (MF) is a fund of funds i.e. your money is combined with the money from other investors, and allows you to buy part of a pool of investments. A mutual fund makes it easier for investors to diversify than through ownership of individual stocks or bonds. You can make mutual fund investment in a significant manner when it comes to investing for a particular goal.

Use risk/reward ratio in judicious manner: Remember that a rational investor with clear idea about his finances should avoid trading/investing in penny stocks. The risks associated with such kind of small cap stocks are too high compared to the likely benefits in terms of heavy returns.

Learn to invest in yourself: When you are young and just starting your career, there are plenty of ways through which you can gear up for further growth in life. Keep striving for excellence in all walks of life and keep on investing yourself by learning new skills and understanding technologies that can help you progress in an efficient manner.

Systematic investment planning: Systematic investment planning or SIP is a widely used option by investors now as it helps in reducing volatility. SIP is a financial planning tool that helps you to create wealth, by investing small sums of money every month, over a period of time. Investing at an early stage of life lets you enjoy the benefits of cost averaging and compounding over a period of time.

Conclusion

Novice investors should always remember than effective investment is not about stock market advice or investment tips but about forming good wealth management habits and following them consistently. The need to be disciplined is much greater for today’s youngsters given the higher disposable incomes and fewer responsibilities due to the rising trend of nuclear families. The ease of borrowing and wider penetration of credit cards also tends to result in generally higher spending. It is therefore essential to imbibe the essential investing virtues and follow them right from the start of your career.

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