Everything a millennial needs to understand about Investing

Being a millennial is not easy. After witnessing two massive economic collapses and living through a pandemic, millennials have a lot to worry about. Since most millennials want to adopt a conservative approach when it comes to investing, they need to make smart choices to ensure they get the best returns. Here are a few tips to help you invest better:

Know your goals

Blindly following the herd never works in investments. Your risk profile is as unique as your fingerprint, and your investment choice should be aligned to your profile. Be honest with yourself to determine how much risk you can bear. Don’t adopt a strategy that only guarantees quick money. Everything that promises sky-high returns may not deliver.

Don’t shy away from research

Researching every single investment product is a golden rule to follow. You need to understand how each product works before putting your hard-earned money into it. Choosing something because someone else recommended it isn’t a smart way to go about it. For instance, if you are serious about investing in stocks, read up on how stock markets work. Shortlist the stocks you want to invest in and read everything you can find. Whether it is annual reports, investor presentations, research published in business papers, or advice from financial experts — put in the work before parting away with your money.

Remember the 8 percent rule

Before investing, check if you will get at least an 8 percent return. Public Provident Fund, which is a popular investment option across different classes of investors, pays 7.1 percent every year and the returns are tax-free. If your chosen investment instrument cannot give you more than that, it is time to look for an alternative.

Set up an emergency fund

Life is unpredictable. As a millennial, it is extremely important to have substantial savings that can help you overcome tough circumstances. Aim at having at least three to six months of expenses as your savings. Also, be smart about how you save money. Instead of simply parking your funds in a savings account, put them in instruments that offer a high interest.

Automate your investments

Keeping track of everything you need to do can eventually result in your forgetting to make investments on time. And why rely on memory alone when you can provide auto-debit instructions on your bank account? This will also help reduce anxiety associated with investing your money. 

One of the best ways to do this is to set up SIPs in mutual funds. You can choose how much you want to invest every month in a particular fund, and the amount will get auto-debited on a specified date. If you are unsure about which fund you should invest in, get in touch with the expert advisors at Moneyfront, who can help you pick the right one based on your risk profile and investment goals. 

Diversify your portfolio

Keeping all your eggs in one basket is best avoided at all stages of the investment journey. The last thing you want is to lose your money because you relied on that one stock or one mutual fund to give you the best returns.

That’s why experts advise investors to diversify their portfolios. If you are investing in a high-risk product, offset the risk by investing in a low-risk product too. The larger idea is that you should never become too exposed to risk and have adequate mitigation measures against losses. 

Don’t forget retirement planning

Retirement planning cannot begin when you are on the cusp of retirement. You need to start as early as you can. After all, the decisions you make today will have a huge impact on how your retired life will turn out to be. 

Don’t ignore the traditional retirement planning options such as the National Pension Scheme that can help generate a sizeable amount of wealth depending on how early you start investing. Speak to a financial advisor to find out lucrative investment options that are good for retirement planning. 

Don’t complicate your investments 

Every day, new products are highlighted as the best option to invest in. From bitcoins to cryptocurrency and NFTs, there is no shortage of options. At the same time, remain mindful that there is very little information available about these products and how they perform in the long run. While some of these options can generate sky-high returns, they can also make huge losses and put a severe dent in your savings.

If you do not have much experience in the field of investments, stick to safer options in the beginning. Once you are comfortable, move on to other products in the market. For example,  start out with mutual funds and ETFs if you don’t want to only stick to stocks. If you cannot understand which one you should go ahead with, speak to a fund manager. Mutual funds and ETFs can help you compound your money and are considered safer investment options. 

But always remember that there is no silver bullet that will always perform well. So prepare yourself to absorb the losses. 

Bottom line

When it comes to investment, every small amount counts. Don’t wait for your income to reach a certain threshold to start investing. Start small and stay consistent. Pick products suited to your unique risk appetite to make the most out of your investments. Earmark a certain portion of your monthly income to be used for investments — if you make investing a habit, you will find it a lot easier to create wealth in the long run.

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Yonita is the pillar of Client servicing at Moneyfront. She has worked with Citibank for over 25 years in operations and client servicing. In her stint with Citi, she has managed large service setups and her rich experience of banking spans across managing clients, operations, audits and compliance matters. She epitomises ‘client excellence’ in the true spirit of the word. Her motto and single-minded focus is to make sure every client is a happy client.