How to start investing in your 20s?

 

 

How to start investing in your 20s?

 

If you are in your 20s I’m sure you might have just finished your education or you might have just started earning so this is a very important phase of your life when it comes to start investing early. So if you want to know about all these basics let's begin right away. Let's understand the top 3 reasons why you should start investing early?

 

The very first reason is that if someone starts investing at the age of 21 or 22, you can imagine that, that person will be investing from this age till the age of 60 almost. So you can imagine what a big corpus that person will have for his retirement purpose. Second reason is that as you start early you have the benefit of risk averaging; now you will be like what is this risk averaging.

 

 

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When I started investing and as usual as a new investor starts investing immediately there's a market fall everyone knows what happened in 2008. Whenever I start investing it will go down and all that that would have been a big negative point for me what I did? I kept on that discipline of investing at regular intervals so what might have happened I invested in 2008. I invested in 2009-2010 and now you can see at 2011 already it has come back to the level of 2008. Again I kept on investing from 2011 and I’m investing till date and now you can compare the level of 2008 with the level of 2020. It has majorly increased since then. So can I say this? Because I invested in a disciplined way, because I invested at every specific time interval my risk was automatically averaged out. So I hope you have understood this point of risk averaging and the last important point is that you can have a very nice compounding effect if you start investing early but how is what we are going to check out immediately.

 

Let's understand how an amazing effect of compounding can be seen if you start investing early. So we have to give some basic inputs, inputs like what you have to give your input of your current age, you have to give an input of what will be your retirement age and right third thing you have to give an input of how much will be your monthly investment amount. Generally we talk about investing very systematically like, like a SIP or systematic investment plan right and number fourth input is that you have to give is how much returns do you expect. Let's say we are taking we are going to take a return of 10 which is not very high. If I’m going to talk about a longer time frame so shall we start in inputting the data?

 

Let the current age is 21 years, the retirement age is 60 years, the monthly investment is Rs.10000, let the rate of return is 10% and the time period is 39 which is 60 minus 21. If you calculate the amount by the basic formula or any other compounding calculator you will get the amount around 5 Crores 76 lakhs which is huge amount at the time of retirement.

 

How does that work if you start investing at the age of 40, that amount is going to be just 76 lakhs I hope you have understood how big a difference can be created if you start investing early and if you have that financial discipline in you. Now let's understand the top three things that young investors should avoid while investing.

 

The very first one is to follow the advice of your friends because that person is just going to give you hot tips and you're going to just blindly rely on him so don't do that don't invest based on friend/relative advice. Second mistake which many people do is that they invest in the market without having proper knowledge so if you do that again you're going to fall flat on your face and you're going to make losses don't do that and third mistake is that they follow the herd mentality. There are many people who are going to just invest because their friends are investing and their friends are investing because their friends are investing and none of them knows why they are investing, so avoid the herd mentality.

 

Now let's try and understand where can you invest your money?

 

I'm sure everyone knows that there are two major options one is equity and the other one is debt. Now question is how much should you invest in equity? There is a very standard thumb rule which says that hundred minus your age should be your percentage investment in equity my math is not that good so assume that my age is 25 so in this case how much will be investment in equity it will be 100 minus 25 so 75 percent of my investment should go in equity and 25 should go in debt. Now the next question arises is that if I was to invest in equity how and where can I invest in equity that depends on certain factors? There are various possibilities.

 

First one is that you invest directly in equities when can you explore this you can explore this if you have knowledge. Number two, you're prepared to gain that much knowledge by maybe by watching a lot of YouTube videos or checking out my various blogs on my website www.financewithatul.in or whatever reading books as well right so that you can do when you have knowledge in stock market or you're ready to gain knowledge in stock market. Number two you're not sure about a specific stock but you're sure about a specific theme and possibility number three is that you are neither sure about a specific stock nor are you sure about a specific theme but you are sure about the overall direction in the market. Did you remember that nifty chart from 2008 to 2021; it has gone in the upward direction so you feel that all in all it will go up so I want to invest directly in nifty. Don’t Do that.

 

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