Millennials live in a fast-paced world, with a mentality of 'living in the moment', hence, there is a lack of patience and motivation to save for the long term. Trading stocks, mutual funds and financial assets for short-term gains lead to eventual wealth destruction.
Millennials often get carried away by trading workshops and free webinars that promote day trading.
We live in a world full of uncertainties, driven by macroeconomic factors such as demonetization or the COVID pandemic. Experts say from these events, we should learn the importance of financial security and the importance of having a passive income along with an emergency fund.
However, experts say there are various reasons that are hindering millennials to invest right. Saumya Shah, Founder – Tarrakki, a wealth management platform incubated by Afthonia Lab, says, “It is advisable to start investing as soon as possible, as by starting early we can take more risk, and potentially earn higher returns. Therefore, it is important for millennials to have a habit of investing to get benefit from the effect of compounding.”
Industry experts say a lot of millennials have debts to pay, mostly in the form of student loans – these people should be focused on getting rid of it first. However, people without student loans are often seen taking heavy debt to purchase depreciating assets such as cars, mobile phones, etc. which leads to a debt trap, and many millennials are unfortunate victims of it.
Shah of Tarrakki says, “Millennials live in a fast-paced world, with a mentality of ‘living in the moment’, hence, there is a lack of patience and motivation to save for the long term. Trading stocks, mutual funds and financial assets for short-term gains lead to eventual wealth destruction. Millennials often get carried away by trading workshops and free webinars that promote day trading.”
Experts say, most people in this category also lack adequate knowledge about investing and thus fear losing their hard-earned money, especially looking at how the markets crashed in 2008 and 2020, because of which these people are not being able to invest right.
How should one start investing?
Whatever one’s income is, experts say, every individual should invest a portion of it, and instil a habit of regular savings. To do so, one should start by making a budget to determine the surplus savings.
If you are looking where to invest, there is no one single answer. It is based on the financial and risk profile of an investor. For instance, a 28 years old investor with no other responsibilities, and an aggressive risk profile – means he has a high-risk taking capacity and a long investment horizon. Experts say this category of people should have high exposure to equity and less exposure to debt.
Shah of Tarrakki says, “This kind of investors can either directly invest in the stock market or indirectly invest through a mutual fund or an ETF.” He further adds, “For those with a good understanding of the market, the direct investment would make sense but mutual funds and ETF’s are for those who lack adequate skills and knowledge to directly invest in the stock market. These investors can have a decent allocation in small-cap, mid-cap and multi-cap funds as they are more volatile and riskier funds but give a high return in the long term. For debt, one can have exposure to debt hybrid funds, long term bond funds, banking and PSU funds or gilt funds.” You can also look at gold or real estates as these provide good returns in the long run.
Things they should keep in mind while investing
For salaried people, it is a must to manage taxes. Make sure you know about all the deductibles offered under section 80C and 80D such as HRA, ELSS, NPS, PPF, interest deductible on the first home loan, children’s tuition fees deductible etc. Shah of Tarrakki says, “It is advisable to save your money under ELSS for tax benefits and capital appreciation as they provide a good rate of return.”
Whenever investing in mutual funds, experts say to make sure to go through the route of systematic investment planning (SIP). SIP gives investors the benefit of rupee cost averaging, wherein you get more units when the market price is low and fewer units when the market price is high.
Additionally, while investing, diversify your investments across different asset classes and across different mutual funds to minimize the risks. Experts suggest it is also imperative to start building an emergency fund little by little and accumulate at least 6 months of expenses, investing in liquid assets. An emergency fund provides a safety net for you and your family and should be given high priority. Moreover, having adequate health insurance is also important. Experts say, buy insurance when you’re young as the better your health profile, the lower the premiums you will have to pay.
Do proper research and analysis on your own or you could take the help of a financial advisor before investing your money.