How to invest in your 20s!

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Have you heard about “Sensex”, “NIFTY50”,  “Mutual funds”, or “ETFs” but aren’t sure about what these terms actually mean? If yes, then this article is for you!  

Investing is a way to save money and make that money work for you so that you can live a life you imagined in the future. Legendary investor Warren Buffett defines investing as “the process of laying out money now to receive more money in the future”

If you’re in your twenties then this is the best time to start investing and you’ll get to know why in this article by Terminal Stack!

Why is investing important?

You might have heard adults complaining about how cheap products used to be back then. Well, this is because of Inflation which simply means that over time money loses its value. As a result, it takes more money to buy the same amount of goods and services than it did in the past. 

Inflation reduces the purchasing power of money. Thus, by investing you can combat inflation and increase the chances of affording the same amount of products and services in the future that you can today.

Investing guarantees present and future financial security. It permits you to increase your wealth. Moreover, you get benefitted by the power of compounding.

Also Read: 20 Proven Ways to Earn Money Online!

Why is it important to start early?

Let’s assume you’re 20 years old and you’ll invest 2000 rupees (per month) consistently as a general rule till you are 65 years old assuming an interest rate of 10% on your capital with an inflation rate of 5%

What amount will you have at the age of 65?

Have you figured it out yet?

Indeed, the answer is 1 Crore!

This is the power of compounding!

However, this is not 1 Crore of year 20XX because of inflation but you can still imagine how huge this amount is.

Just 2000 rupees per month, starting at the age of 20, with an interest rate of 10% will give you today’s 1 Crore.

Nevertheless, let’s say you can invest 2000 a month 2500 p.m., 5000 p.m. You can envision the amount you can acquire through investing! Play around with these figures using this investment calculator

Now let’s imagine you are 30 years old instead of 20. And you are following the same investing strategies with the same inflation rate at an interest of 10%

What will your final amount be?

Only 50 lakhs!

Shocked? 

Difference of just a decade.. and half of your money is gone!

This is the power of starting early..

Because everyday is decreasing your compounding. And later you will realise that you have lost 5 million just because you wanted to party, eat in 5-star hotels, or maybe wear branded clothes!

Well, all of that is important too but you need to understand the power of investing now as time and tide wait for none!

Top 4 asset classes and how to invest in them?

There are a lot of investment categories out there. But nearly all investments fall into a handful of categories called “asset classes”. An asset class has similar types of characteristics governed by the same set of financial regulations. Following are the four broad asset classes:

  • Cash: low risk, very fewer returns (SBI savings account – interest rate of 3.25% )
  • Debt investments: This includes bonds, debentures but the most common debt investment in India are through FDs (SBI FD returns-5 to 7%)
  • Real estate: location specific returns, additional maintenance cost, low liquidity
  • Equity: Risk: medium to high, Long term investment(index funds, smallcase)

Age-wise investment options

Where should you invest?

Remember you don’t have to protect your money in your 20s but you need to grow your money. So you ought to intelligently outline all the venture choices out there, some of them are:

Mutual funds

  • Mutual funds are basically money pools which collect money from people like us.
  • A fund manager then uses this money and invests it in various stocks, bonds, money markets, etc. which will provide the best returns and high profit.
  •  Mutual Funds offer moderate returns, however, the risk involved is lower than equity investment.

Index funds

  • Let’s say if someone asks me “how is the market performing today?” Then obviously I cannot list the performance of 5000+ companies listed in the Bombay stock exchange! Instead, I’ll need a representative figure which will give him/her a crisp understanding of the stats needed and that is called index.
  • Sensex is the index of top 30 companies in the Bombay Stock Exchange and nifty 50 is the index of top 50 companies listed in the National Stock Exchange. Mutual funds investing in these top companies are called index funds.

Stock Market

  • You must have heard that FDs but they only give interest rates of 3-7% but the stock market can give an interest rate up to whopping 15-20%. But what exactly is the stock market?
  • A stock market is a place where shares are publicly listed and traded. The stock market allows individual investors to own stakes in some of the world’s best companies, and that can be tremendously lucrative.
  • Any company that wants to raise capital or fund their businesses issue stocks publicly and investors who think that their business might prosper in the future buys and sells these stocks accordingly to gain huge profit or generate wealth.

ETFs

  • Exchange-traded funds(ETFs) are becoming immensely popular since the past few decades. They are similar to mutual funds as they utilize the combined investment capital of various investors. 
  • ETFs provide a liquidity advantage over mutual funds as they can be bought or sold at any time whereas mutual funds shares can be bought or sold at the end-of-day closing price.
  •  ETFs offer lower fees than mutual funds henceforth reducing the trading cost.

Cryptocurrency

  • Cryptocurrency is a form of payment that can flow without the need of a central monetary authority such as a government or a bank. Instead, cryptocurrencies are created using crypto techniques that allow people to buy, sell, or trade them securely.
  • The most popular cryptocurrency, Bitcoin, has had a historically volatile price. In 2021, it hit an all-time high above $65,000 before turning back.
  • Cryptocurrency works on the principle of blockchain. Click here to learn more about blockchain.

Well, this was a brief introduction of various investing techniques yet there are a ton of things to cover about these points as in what is a trading account, Demat account, best apps for investing, who is a broker, how to invest in Smallcase, How to pick the right investment options? What are the top investing mistakes to avoid? and a lot more!

So stay tuned for more such investing related articles 🙂

And remember…The best time to plant a tree was 20 years ago and the second best time is now! So, start your investing journey as soon as possible!

References

https://www.investopedia.com/articles/basics/06/invest1000.asp

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