I firmly believe that investing is a skill that is best learnt as early as you can. I first started investing back when I was 13 and over time I have been able to learn, test, and improve my knowledge when it comes to the markets.
Here are 10 things every young investor should know:
While the ultimate objective is always to make money, it helps to frame your investing goal. It could be as abstract as wanting to save 20% of your salary every month to something concrete as saving for a new bike in 2 years. Once you have set a goal, plan your investments accordingly to achieve it.
One of the best things you can do when you are starting off is to set up a mutual fund SIP. The monthly investment goes a long way toward building discipline and fostering the idea of investing regularly. SIPs also help your investments get spread out over time, reducing the effects of short market disruptions.
The markets are always fraught with risk, but you can manage it by diversifying your investments. Your money should be distributed among multiple mutual funds, stocks, bonds, and other investment opportunities.
Your capacity for risk-taking is highest when you are young. As you grow older, your appetite for risk will fall but so will the potential for outsized returns. So take measured risks, invest directly in stocks, explore derivatives, and be constantly on the hunt for good investment opportunities that you can afford to take.
Investing can’t be learnt overnight, you will need to spend time (and money) learning about the markets, the different opportunities and risks it entails. It can be worth your while to hire the services of an expert, an investment advisor or a wealth manager can help you plan your investments and can supplement gaps in your knowledge and skill.
Far too many people think they cannot do anything about their taxes. This is not true. Understanding your taxes and learning how to mitigate them (for example by using ELSS mutual funds, or claiming business expenses) will help you manage your money better and make the best returns from your investments.
Medical and Life Insurances are a vital part of your portfolio, do not see them as expenses but rather as necessities. Getting insurance when you are young also means lower premiums and as a bonus, you can claim tax deductions.
Learning to manage your credit, be they loans or credit cards, is something every investor needs. A good credit score means better loan rates and easier access to credit which you will need if you plan on buying a home, a vehicle or fund further education.
Your investments need attention and while you don't have to be a helicopter parent, you do need to monitor performance. Follow economic and market trends and set alerts on your stocks and funds. Make it a practice to review your investments every 6 months or so. Enlist the help of an advisor if needed. This will help you spot bad investments early and foster good ones.
In my experience, one of the most catastrophic mistakes investors make is a lack of patience. The greed for quick returns causes them to take needless risks but when the tide turns, few have the stomach to face losses. Understanding when to cut your losses and when to stand firm is what will decide your success as an investor.
The author is CEO and Head of Investment, Minance.