In your 20s, you probably aren’t burdened with responsibilities and the need to stay financially stable. Even if you earn less, you have a lot fewer duties to fulfill, so you can afford to put aside an amount from your salary for future investments. Another reason you should start investing is that if you start early, you will end up with a more significant profit than you could if you start late, even with a small amount of money such as Rs 500. Given below are some top 5 tips you can refer to while starting on your investment plan in your 20s:
1.Start Investing Early
If you start investing early, you will hold many advantages over others beginning later in life. It gives you enough time to think out and carefully plan your investments. If the tenure of your investment is long, you can put in even small amounts of money, which will give you a massive profit in many years. You can start simple and gain a lot of experience and knowledge about what to invest in. In your 20’s, you have less need for financial stability or responsibilities, so you can afford to take some risks. Since you’re starting early in life, you, fortunately, have a lot of time to recover from any failure if it happens.
2.Understand the process of compounding and use it to your benefit
Compounding refers to when you invest in something and gain profit, and then later, you can reinvest the previous profits to achieve an overall more significant profit. In your 20’s there is a high chance you won’t be earning as much as you would in your later life. While investing, compounding can take your minimum amount and triple-fold it and more. So you can start investing with even small amounts but gain huge profits when you decide to withdraw.
3.Set your tenure and goal
Set yourself a goal or the end of your tenure when you want to withdraw the amount you gained from your investments. According to your financial needs, it can be five years, ten years, 25 years, or even more. It is considered wise to set aside multiple tenures based on whether your girl is short term or long term. If you want your amount in 5 years, it is considered short term, but if your investment is for after you retire in 30-35 years, it is a long term plan. Depending on how long your investment is for, you can decide on a plan that suits you best.
4.Decide on your investment options
Depending on the amount of money you want to invest, the rate of interest, and your investment tenure, you decide on what to invest. Mutual funds work based on pooling cash over a long time which happens along with the compounding of your invested capital. Another option is to invest in equity shares of a company over a long period, and the gains will depend on the company’s performance through the years. You can even pool your money in Public Provident Funds (PPF), in which your amount compounds overtime at a rate fixed by the government. Particularly in India, investing in real estate and gold can bring profits if invested over a long time. The most common option is to deposit the amount in a bank as a fixed deposit, increasing at a fixed rate that differs from each bank.
5.Decide how much money to invest
While you’re in your 20s, you have all the time in your hands and can afford to take things slowly but steadily. Before investing, you have to decide beforehand how much you can afford to invest while not putting a significant strain on your basic needs. It is also considered wise to set aside some amount for emergency needs or quick expenditure. Depending on how much you earn every month and how much you have to spend, you can set aside the amount for your investments.
Remember that investments return profits over a long period, so patience is the key here. Set an aim that you want to achieve with the money you gain over time, whether buying a house, tuition fees, or simply your retirement plan. Another good thing that comes with starting to invest early is that you learn how to save money and not spend lavishly while in your 20s. It helps you keep track of your expenditure and is an excellent habit to pick up on.
Edited by Aishwarya Ingle