Rohan MathawanFor young people, investment is the best option to make their future economically successful. After all, it was Warren Buffett himself who started investing when he was just 11 years old. By investing at a young age, you will be able to make the most of your investment in the right span of time. But as a young investor, there are certain things that you should keep in mind to bring the best out of your funds. Depending on the types of shares you invest in, your growth will accordingly correspond with it.
There are some tips to help you make the most of your early investment.
1. Set The Goal
It is always important to first make a proper plan regarding how you want to see yourself down the years. Make a retirement plan and compute what amount would be suitable for you to live your life comfortably. Once you have figured out what your future requirements are going to be, you will be able to plan better for the present. This way you can analyse your monthly or yearly expenditure on the investment and save accordingly. Depending on the investment requirements, you will also be knowing what types of shares will serve you the best.
2. Systematic Investment Plans
One of the best options for young investors is the systematic investment plan or SIP. In this process, instead of paying a lump sum amount, you can pay a small amount regularly. The types of shares which include SIP are mutual funds. Here you can pay an amount as low as Rs 500 and gradually your investment amount will keep accumulating. This method allows people to keep investing without worrying about capital. You also get the benefit of compound interest so that the valuation of your investments will keep increasing year after year.
By investing a short amount but on a regular basis can yield high returns in the future without burdening your wallet.
3. Types Of Shares To Invest In
An important thing to keep in mind regarding the share market is to know about the types of shares available out there. There are basically two types of shares: equity shares and preference shares.
Equity Shares are also called ordinary shares and are the most common form of shares to be issued by a company. It is these shares that are brought into the market to be purchased by the majority. The benefit of equity shares is that they are easily transferable. You are also entitled to receive dividends and to cast your vote on the company’s financial issues. However, the downside of equity shares is that they are highly volatile as they provide little to no security on the market risks.
The preference shares have merits which the equity shares lack. As an equity shareholder, you will get the benefit of being paid first when the company profits as well as when the company is to get liquidated. But the major downside with the preference shares is that they do not give their owners the voting right.
Depending on your choice, you can choose the types of shares you want to invest more in.
4. Do Not Transact Rapidly
A common mistake the beginners make in the share market is that they keep buying and selling on a regular basis. Imagine a scenario where a young investor invests in a company. Soon he finds that a new company has come up and has a better chance to do well in the coming future. Now what this investor does is he sells his existing shares at a price lower than the price he paid to buy them. The amount he got paid back at a loss is now invested in this new company. To do this once in a blue moon is alright. But transactions like this on a frequent basis will only make you lose money. Investments need time and no matter if another competitive company turns up, you have to keep faith in your existing stocks as they need a considerable period of time to provide good returns. Besides, every time you sell shares you have to pay taxes. So keep that in mind as well.
5. Investment Professionals
Investment professionals like stockbrokers are an integral part of the world of investment. You too would need to facilitate your investment procedure with the help of investment professionals. However, getting the right professionals is a key thing to keep in mind. There are professionals who would lure you to investment plans which will cost you more than you had planned. They do this to get more commission.
Getting the right investment professional is important to thrive better in the share market.
Hence, you should always be alert about what your investment professional’s suggestions are and see if they correspond with what you initially wanted. If they do not tally with your budget and investment plans, it is time to get a new expert.
6. Keep Learning
Stagnancy is not applicable to the world of investment. Every day the share market opens up with new possibilities and opportunities. In order to make the best choices, you need to keep learning. Read books on investment, follow news and catch up with the trends in the share market. With updated knowledge, you will know what types of shares are best to go for.
7. Portfolio Diversification
The more you diversify your investment portfolio the lower will be your chances of facing a loss. This is because your funds will not be depending on the performance of a single company. Even if one of the companies you invested in faces a major loss, you can bridge the deficit by the marginal profits you earned from various other investments. For young investors, this is the most prudent thing to do as they are usually not in the position to face massive losses. So if you are about to start investing, it is better you diversify your investments by investing in mutual funds, equities, bonds, ETFs etc.
These are some of the tips which will ensure you go a long way in your investments. Always remember, a prudent investor is the one who learns first and only then acts. More often than not, it pays off well.