Understanding the basics of investing, including how to manage finances, where to invest, assessing risk, and more, is essential before making your first investment
Representational Image. File Pic
By Jasmeen Ara Shaikh
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With more Gen Z individuals entering the job market and millennials showing an interest in diversifying their income sources, investing is indeed the new cool. The generational habits of piling up savings in lockers or creating fixed deposits have now taken a back seat as a new income class emerges—one that's also risk-taking and tech-savvy.
However, starting your investment journey can be overwhelming and may seem complicated. Speaking to Midday, SEBI registered financial advisor Kalpesh Ashar sheds light on the basics of investing through these five tips:"
1. Budgeting: Before you invest your income, understand how you are spending it. It’s important to draw a demarcation between your wants and needs; cutting down on frivolous expenses and avoiding the habit of borrowing through loans or tapping into bank FDs. Ashar suggests defining a goal tenure and purpose for your investments, which will guide your choice of financial instruments and keep you motivated to invest.
2. Cut procrastination: Procrastination is the biggest enemy of investment. The earlier you start investing, the more years of returns you can accumulate—that's a simple mantra. You can start with as little as Rs 500 monthly. It's all about getting into the habit of investing and gradually building a corpus over time. 'There is no right time; the right time is now,' he says.
3. Risk management: Despite the stigma attached to insurance, Ashar suggests getting life insurance as early as your 20s and building an insurance portfolio. A life insurance is only for the one who is the financial contributor of the family and acts as financial insurance in circumstances where your income sources may be struck down by some factor or the other. Unlike health insurance, it’s not an emotional asset and not a necessity for every family member. An adequate term plan is the suggested way to proceed.
4. Start easy: Once you have established your goal tenure and purpose, it's crucial to start investing your capital without further delays. For someone in their 20s just starting their career, Ashar suggests considering mutual funds. Mutual funds offer the opportunity to invest in stocks, bonds, and even gold, thereby helping to maintain a diverse portfolio. They also enable you to participate in the capital market without direct involvement, as experts manage your portfolio, thus minimising risks associated with lack of knowledge and reducing mental pressure to some extent. Direct investment in equity demands dedicated time, knowledge, and tolerance for potential losses.
The option to start with as little as Rs. 500 per month and gradually increase contributions as your career progresses makes mutual funds an even more appealing option for young investors.
It's essential to invest through regulated channels only.
5. Risk Appetite: With investing comes risk. Although there's no definitive answer to what a beginner's risk appetite should be, Kalpesh says, 'The younger you are, the more risk appetite you have because you have more career years ahead of you and more time to earn and invest.' However, he emphasizes the need to take calculated risks and plan mindfully, especially for Gen Z individuals who are often attracted to quick, high-return investments that could lead to trouble.
Investing certainly cannot be learned and mastered in a day. As Kalpesh puts it, 'Saving is an emotion and investing is an art.' Discipline, diversity, and patience are key to a successful investing journey.
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