According to a study, 52% of people in the age group of 21 to 36 keep their savings in cash, where the growth is non-existent. Akanksha understands that if her goal is financial independence, this isn’t the way to get there. She is just beginning her personal finance journey, but understands the power of compounding and is totally sold on the idea of investing. She is determined to build a sound financial future for herself all the way to her retirement 40 years away. However, like a lot of other young millennials, she also needs an initial push, a beginner’s guide to investing that outlines everything she needs to know to get started.
New investors like Akanksha should strive to build a diversified portfolio that contains both defensive and growth-oriented investments. By building a portfolio with a fair amount of defensive protection built-in, it will be easier to avoid the temptation to sell during the volatile times. Hence, her portfolio must include equity stocks and mutual funds for growth, bonds, deposits and gold for defensives.
Before Akanksha dives in and starts investing, she might also want to think about how she wants to create and manage her portfolio. Unless she has all the time in the world to study the markets, learn chart patterns and understand the business models/working of all the companies, she may not be sure of her moves. Instead, she could consider investing in indexes and ignore the ups and downs of the market.
Her decision on investment strategy can be based on assessment of her own temperament to invest, risk tolerance and need for control or supervision on investments.
This would help her decide if she would like to take the active management route or simply trust the benchmark index or ETF. Unlike actively managed mutual funds, ETFs do not try to beat the market. Rather, they are designed to track the market. They are generally seen as relatively safe and cost-effective long-term investments. ETFs are a solid choice for new investors and all she would need is a demat account.
Becoming an investor can seem like a far off goal for Akanksha as she starts her career. However, she does not need to be rich or even financially well-off to start investing. Anyone can do it. The sooner she gets started, the better the results. She needs to put together an investment strategy that she is comfortable with, stick to it over the long term and try to take the emotions out of the equation altogether. Day-to-day market fluctuations and even massive dips like the one we saw in 2020, shouldn’t deter her from her goal. Therefore, the bottom-line is to start small, diversify the portfolio, be patient and make smart decisions.
(Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)