10 investment tips for people under 25 years
If you are under 25 and meaningfully employed with decent earnings here are 10 investment tips to create wealth.
1. Take stock of your financial situation. Ascertain your total income from all sources, your total expenses and thus, your total free investable surplus. This is the amount which is available to you to invest across equity and debt instruments. Also keep a small amount aside for emergencies.
2. Set short and long term goals for yourself. This exercise will help determine the sums of money needed to fulfill your goals and for upcoming heavy expenses. It will also be helpful to decide where and for how long you should invest your money.
3. Determine the amount of risk you are willing to take. Generally at a young age, investors are advised to take on higher risk so that their returns are maximised during this period, as their dependencies are lesser. However, it is always important to know your own risk-bearing propensity and plan your investments accordingly. There are investor profile tools that are freely available with most financial service companies that can be used for this.
4. Take help from advisors and experts. They bring with them vast knowledge and experience and can inform you about all the options available and guide you through investing in them. However, you should always keep a look out for bias or personal agendas in their recommendations.
5. Create a model portfolio. Based on your goals and your risk profile, a portfolio should be created that includes equity, debt and other investment products.
6. Conduct a thorough information search. In addition to financial advisors, do a thorough search of all information related to the products that you are adding to your portfolio. Always make sure that the investment product or instrument is from a registered and financially sound company. Investment opportunities may come from friends, relatives or other members of the community which could have no real foundation behind them, and you could end up losing all or a large part of your investment.
7. Be wary products that promise high returns. The risks associated with these are far higher and while they are attractive, they should be properly validated and checked before investments are made in them.
8. Track your portfolio at regular intervals. Check where you are at, financially, with respect to the goals you have set for yourself, both in the short and long term. You may, at times, need to exit certain investments and enter new ones, when you feel their respective objectives are not being met.
9. Never invest in products that you don't fully understand. Always make sure you comprehend the instrument fully, with respect to the rate of return and how it is calculated, the terms and conditions, tenures, variants, options etc.
10. Keep the tax angle in mind. Check the tax efficiency of your portfolio. Each product has a taxation aspect to it, with some being far more tax efficient and enable you to save some money.
The author works in the Wealth Management department of Tata Capital.
Photographs: Rediff Archives