Financial Tips Every ’20s must know

We all want a hefty amount for our retirement but you benefit more from savings when you start early.  So, if you start saving from your 20’s you will of course have more in your kitty than in your 40’s. This will give you an opportunity to make the most out of time and also retire with confidence. While the money may be tight at a young age, one thing that they have is Time and we all know that Time is money.

First, let’s see the benefits of saving early;

1. Power of compounding: Compounding in simple terms means earning an interest on your interest i.e. earning on your earnings. Let me make it simpler with an example. If you invest just Rs. 500/- every month, for the next 40 years at a fixed interest rate of 6% p.a., by the end of 40 years, you have invested Rs. 240,500/- and you have earned a compounded interest of Rs. 718, 482/- so the total money you get at the 40^th year is a whopping Rs. 958,982/-. Isn’t that simply amazing?  Keep one thing in mind, the longer you stay invested, the more you gain. To further understand the magic of compounding, read here. 
2. Ability to digest the market fluctuation: When you invest early, any drastic fluctuation in the market gives you the cushion of time to recover back. But if the same happened when you are saving for your retirement and also paying for a mortgage, child’s education, and car loan, it would be a hard road to recovery. 
3. Being prepared for life: Life is all about unexpected surprises. An unplanned vacation, a change in career path, or a medical emergency may change your financial outlook and when you start early, you have the ability to handle these changes without altering your financial goals drastically.  

Young adults have a high-risk appetite as their age works as a shock absorber. With more years of earning ahead of them and time in hand, they can venture into investing in riskier options and have an aggressive approach towards their investment to earn more gains. 

So now lets us also see the options of saving those young adults can explore. 

Equity Shares: Let’s first understand what Equity Shares is. Equity means having a share in someone else’s pie. So here, the pie is a company that’s listed on a stock exchange, and when you buy a share of that company, you have got yourself a share in that pie. As a young adult, the investment should be concentrated on growth-oriented assets in order to attain higher returns.

Markets can be volatile, you may gain 10% in a year and the next year, you may lose 20%, like in the current times when the market saw a dip due to the COVID pandemic. But a young adult has a lot of time by their side to weather the market fluctuations. 

But Equity market requires gaining some knowledge and understating of how it works and from where to start before you take the plunge. Many online portals and channels have tutorials and videos to help you learn. You can also learn and understand the markets and other investment avenues with the help of L&T Investment Ki Paathshala. Click here to know more. 

But for a person who wants to invest in Equity and doesn’t understand the nitty-gritty of it, has one more option. 

Mutual Fund: So, as I said above, if you don’t understand the nuances of Equity trading, you can rely on Mutual Funds. The main advantage of a Mutual Fund is that it is managed by professionals. First, identify the sector you wish to invest in, like Real Estate, Pharma, or Oil & Gas. Now, search for Mutual Fund in those sectors. Compare the returns of these funds and start investing with SIP (Systematic Investment Planning). To understand how SIP works, read here.  

You can feel more protected with a Mutual Fund as you have someone with experience and understanding of the markets managing your money. Also, in Mutual Fund you get a diversified portfolio as the money is parked in multiple company shares and not just a single company, hence diversifying the risk. For example, you wish to invest in growing businesses, you can invest in mid cap or small cap funds which is a high-risk fund investing in many mid cap or small-cap companies which are in the early stage of their development and have the potential to grow. Always have the habit of reading the scheme related documents before investing to understand the scheme type, investment patterns and the risk factors associated with particular investments and consult your financial advisor to understand the implication of any investment.

Quoting a famous quote by Warren Buffet, the man who grew with the stock market and first invested when he was just 11years old, “The Stock Market is a device for transferring money from the Impatient to the patient.” So, start investing early and be patient with your money. Allow it to grow with time and reap the benefits later. Invest what you can and when you can and always make it long-term. 

Happy Investing. 

Disclaimer: This information is general only and does not have regard to the particular needs of any specific person who may receive this information. L&T Investment Management Limited, the asset management company of L&T Mutual Fund or any of its associates; does not guarantee/indicate any returns/and shall not be held liable for any loss, expenses, charges incurred by the recipient. The recipient should consult their legal, tax, and financial advisors before investing. The recipient of this information should understand that statements made herein regarding future prospects may not be realized or achieved.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.