A young investor is in a better position. The amount of risk an investor can accept depends on their age. Young investors have the option of seeking greater profits by taking greater risks. This is so that if young investors lose money, they will have time to make up for it by earning more money. This may appear to be a justification for a young investor to wager on high returns, but it is not.
Young investors should try to invest in businesses with higher risks but longer-term upside potential. A significant loss might leave a young investor scarred and influence future investment decisions. Leverage has its benefits and pitfalls. If there is ever a time when investors can add leverage to their portfolios, it is when they are young.
As mentioned earlier, young investors have greater ability to recover from losses through future income generation. However, similar to highly speculative trades, leverage can shatter even a good portfolio. One option is to use leverage in moderation, possibly with only a portion of the funds in the portfolio.One can start with Intraday Trade which provides 5-6x leverage instead of using derivatives for leverage which can be 25x leverage.
One of the most important factors in forming investment decisions is asking, “Why?”. If an asset is trading at too low price there is a reason, and it is the investor’s responsibility to find it. Young investors who have not experienced the pitfalls of investing can be particularly susceptible to making decisions without locating all the pertinent information, investing the majority in high-risk penny stocks.
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Young people also typically have less financial experience. As a result, individuals are frequently tempted to prioritise spending their money now rather than paying attention to any long-term objectives, like retirement. Lack of investing and saving when still young may result in bad financial habits as one ages. In the short term, investing some money rather than using it for immediate expenses can boost wealth and quality of life.
Learn the fundamentals of the stock market before investing. Your investments may be impacted by financial measures, stock selection, and different investment accounts. The greatest strategy to prevent initial large losses is to understand how the stock market operates. Prior to investing, a young investor must have a sufficient emergency fund that can cover six to nine months’ worth of expenses. Next, ascertain your level of risk tolerance and the appropriate mix of investment categories.
You won’t get anything for your risk unless you take it. When there is a recession, it is the ideal moment to invest in the stock market. Due to fear, people are selling prized possessions for a small portion of their true value. Investing can be intimidating when markets are volatile, whether you’re a novice or a seasoned pro. By utilising a consistent, logical method when investing for the long term and by running ideas by individuals you can trust, you may reduce some of that fear.
Keep investing in the market despite the typical and cyclical market volatility. Your investment strategy and plan should be created to assist you in achieving your long-term objectives as a novice investor.
(By Manoj Dalmia, Founder and Director, Proficient Equities Private Limited)
Disclaimer: This is the author’s personal opinion. Readers are advised to consult their financial planner before making any investment.