When you are in your 20s and finished your education, start to work and start earning. This is a very important phase of your life when it comes to starting investing. Here I have various opinions on How and Why Investing in early 20s is beneficial.
Three Reasons Why you should start Investing Early:
Let’s understand the top 3 Reasons why you should start investing Early:
- Retirement Plans: Investing Early will increase the chances of having a huge corpus by the age of retirement.
- The benefit of Risk Averaging: Keep a discipline of investing at regular intervals. Investing at every specific time interval will average your risk.
- Compounding Effect: A higher return on your long-term investments because of the compounding effect.
Investing Early and in a Disciplined way will lead you to get a larger profit, than someone who started investing late.
Let’s see this as an example:
If someone is investing 10k from the age of 20s, he will get a longer period to invest than someone who is investing, late.
Things you should Avoid while Investing:
- Blindly following the investment Tips.
- Don’t invest in the market without proper knowledge.
- Don’t follow the herd mentality. Most people are investing because someone other is investing.
Where Can you Invest?
There are two major options:
- Equity
- Debt
There is a very powerful rule for investing in equity.
Rule: 100-your age = result%, should be your percentage investment in equity.
Let’s say your age is 25, according to rule (100-25)= 75% should go to the equity and 25% to the debt.
Investing in Equity (Stocks SIP):
- Investing Directly in Equity: You can explore this if you have knowledge or, you’re prepared to gain that much knowledge.
- SIP in theme: You’re not sure about a specific stock, but you’re sure about a specific theme.
- Nifty BeES: When you are sure about the overall direction in the market.
How can we invest in a specific theme?
The theme of investing with a small amount and the theme of investing in top 100 companies. Top 100 based on their market capitalization.
Investing in Debt:
There are two options that we are going to discuss.
- Investing in Public Provident Fund (PPF)
- Investing in Alternate Funds like Gold/Debt Fund
- PPF: PPF has a lock-in period of 15 years. If you start early, you will be comfortable at a very young age. So my major lock-in is over. Now, extension happens only for five-five years. Major lock-in is drastically reduced.
I hope you have understood the importance of starting your PPF at a very young age. With only 500 rupees you can begin your investment journey in PPF.
How much amount I can start investing in PPF?
You can invest 500 rupees every month, that is allowed.
What is the maximum limit maximum?
The limit is 1 lakh 50 000 rupees. The interest you’re going to get is going to be tax-free and the interest rate currently is 7.1%.
- Investing in the gold fund or investing in a debt fund:
If you invest in gold, we typically say that gold acts as a very good hedge, against market volatility. It’s always said that equity and gold move in the opposite direction. Investing in gold makes sense, as a good hedging parameter.
Never Putting all Eggs in 1 basket:
Even if PPF is suitable, don’t invest entirely in PPF. Invest some amount in PPF, some amount in gold, and some in debt. That will give you good overall balancing.
If you’re investing in gold or debt, there is a chance that you may earn a shade higher than the actual interest.
Portfolio Allocation:
This is also known as Asset Allocation. It is an investment strategy that is used to balance the risk and reward by splitting the investment portfolio among different assets such as equity, real estate, PPF, Debt, etc.
Conclusion:
Even if you are not in your 20s, even if you are there in your 40s or 50s,
you can share this with your neighbors, with your relatives and help us spread financial literacy.