- How to Start Investing in Your 20s and 30s
Some of the world's top financial advisors believe that starting early is one smart way to invest money.
- You have time on your side.
- You have the threshold to withstand potential risks.
- You get to enjoy a more significant accumulation of wealth by investing for an extended period.
When you start investing in your 20s and 30s, your spending habits improve and you become money-savvy before you hit middle age.
However, making ill-advised decisions without understanding your financial limitations could lead to uninvited stress and an unbalanced financial portfolio.
When you begin investing, you should know how to choose safe investment options with high returns.
Let's look at some strategies that could help you to invest wisely.
- The best way to start investing when you are young
1. Begin by creating a budget before your long-term investment plan
Before investing a certain amount, you should first understand your financial liabilities, such as student loans, daily expenditures etc.
A simple way to do this is using the 50-30-20 rule.
- 50 % of your take-home salary should go towards your daily needs, loans, transport, rent, etc.
- 30% of your income can be allocated to your 'wants' ( eating outside, holidays, entertainment, etc…)
- 20% of your earnings should be allocated to your savings. (This is where your threshold for investing lies!)
You should use at least 30 - 40% of your savings in a long term investment plan.
2. Start small and start immediately- this is the best way to start investing
Investing early can be highly advantageous in the long run. It might seem intimidating, but you will eventually learn to balance your financial portfolio.
- Start small by investing in SIPs: SIPs are an excellent option because they have a low barrier to entry. You can start your investment with just Rs.500/-.
- Start immediately: The longer you earn interest on your parked money, the more it compounds!
Here is a simple example:
Let's suppose you are 25 years old and started investing Rs.7000/- per month in SIP for the next 25 years at an interest rate of 12%.
At the end of 25 years, you would have accumulated Rs. 1.33 crores.
However, if you delay your investment and start when you are 40 years old, you will have accumulated only Rs.16.26 lakhs.
Starting an early investment can earn you up to 8 times more money compared to starting later.
- Diversify Your Investments
You must have heard the saying, "Don't put all your eggs in one basket." It is especially true while investing!
Diversification is essential when you start investing early, since it lowers risk and increases long-term profits.
1. Risk management: If you invest early, your portfolio will experience several market cycles, including volatile times. Diversification reduces the impact of a downturn in any one asset class or market by distributing your investments across a number of products (e.g., stocks, bonds, real estate, etc.).
2. Better Opportunities Over Time: Investing early gives you the luxury of time to observe the growth and development of various investments. By diversifying your holdings, you can increase your knowledge of several markets, hone your approach, and seize new opportunities without risking your entire investment.
Therefore, investing should be considered in various asset classes.
Fixed Deposits (FDs) are the best solution for short-term savings or risk-averse investors because they provide a secure, steadily and guaranteed return.
Systematic Investment Plans (SIPs) in mutual funds provide a disciplined approach to investing over time in debt or equity funds, mitigating the effects of market volatility.
Another option is the National Pension Scheme (NPS), a government-backed retirement savings plan combining business debt, government bonds and equity to offer long-term benefits and tax advantages.
Combining these investment options can help you build a robust financial portfolio.
- Frequently Asked Questions
1. How much money is needed to begin investing in SIPs?
The minimum monthly amount to initiate a Systematic Investment Plan (SIP) can be as little as ₹500/-. Because of this, SIPs are available to a broad spectrum of investors, enabling you to begin with a small investment and progressively raise it over time.
2. Are SIPs and Mutual Funds the same?
Although they are closely related, mutual funds and SIPs are not the same.
Mutual funds are an investment vehicle that pools the money of numerous investors to buy bonds, stocks, or a combination of the two. Professional fund managers oversee them, allocating the money to meet predetermined financial goals.
SIP enables you to make regular, small-scale investments at regular periods (monthly, quarterly etc.) instead of investing a large sum of money all at once. Through rupee cost averaging, this aids in the slow accumulation of wealth and lessens the impact of market volatility.
Simply put, SIP is one method of investing in mutual funds.
These were some strategies for understanding good investment options for people aged between 20 and 30. Remember that the secret is to get started early, remain steady and modify your investments as your risk tolerance and financial objectives change.
You'll have more time to put your money to use and attain long-term financial success!
Disclaimer: The article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of The South Indian Bank Ltd. or its employees. The South Indian Bank Ltd and/or the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial/non-financial decisions based on the contents and information’s in the blog article. Please consult your financial advisor or the respective field expert before making any decisions.