Rajan and Siddharth, best friends for life, grew up together, went to the same college, joined the same company with the same designation, at the same age of 25. Both earned a similar income over the next 15 years. However, the financial difference between the two was huge at 40!
Rajan was broke, in debt and struggling to make both ends meet, working hard in a stressful organisation where he was unable to cope up due to his increasing age. On the other hand, Siddharth had built a level of wealth that allowed him to retire from a stressful corporate job, and live a peaceful life.
So, what made all the difference? It’s a one word answer: investment!
When their first salary was credited, Rajan discovered spending and Siddharth discovered investing at the early age of 25. That’s what made all the difference.
Are you still in your 20s? And, do you want to live like Siddharth or Rajan? It’s your choice.
Read this article as if your life depends upon it (maybe it actually does).
Listed below are a few tips which can make you wealthy:
Start now: The sooner, the better. There are very few things in the universe that are more powerful than the ‘power of compounding’. This means generating returns on returns. Convert your savings into investments and investments into returns. These returns should again be reinvested. This way, you are generating interest upon interest upon interest. This will help you make so much money that you could retire before you are middle-aged!
Invest Aggressively: Higher returns come with higher risks. Youngsters love risk. There may be situations when you may fall, but you will get enough time and opportunities to overcome it. In the long run, you will make enough.
Blend fixed and fluctuating returns: Fixed returns also known as certain returns include interest on Fixed Deposits/bonds/debentures/NSC/P.P.F, and many others. These are safe haven for low-risk investors. Fluctuating returns are not fixed such as dividend on shares, capital appreciation in real-estate and others. These returns are known for generating higher rewards on your investments, but come with higher risks.
Cost of Investment: Cost of investment can either be a direct fee or a percentage on return like trading through your DMAT account. This cost can be in the form of load fee, commission, the operating fee, etc. But it can be kept low if you do your research right. So remember these words ‘research minimizes cost’.
Diversify: – It’s said that putting all your eggs in one basket is risky; diversification is a Dalal Street equivalent of the same principle. Diversification of portfolio depends upon many factors such as your age, risk appetite, income level, among other. At the age of 25, your portfolio should be aggressive, which means that most of your money should be invested in high risk-high return investments. Let’s say you want to onvest Rs. 1 lakh, you can invest Rs. 70,000 in shares, mutual funds and gold. The remaining amount of Rs. 30,000 can be invested in old fashioned ‘secure’ investments like a Fixed Deposit, debt instruments, PPF, NSC, etc. These will add certain returns into your portfolio and can cover losses (if any) on fluctuating returns. With time, you may want to switch the ratio in favor of low risk – low return investments and create a balance in sync with your requirements.
Besides the above mentioned points, there are a few general points, which we’ve listed below:
|Always keep an emergency fund handy.|
|Adopt a strategy of ‘first save and then spend’. It will help you accumulate funds for investment.|
|Seek help from financial advisors.|
|If you invest in the share market, buy shares of different companies.|
|Don’t try to predict share prices and mutual funds as future cannot be predicted.|
Conclusion:If you are in your 20s and reading this article, make sure you implement it. You have time and energy and if you start even with small amounts now, and quit investing after 15 years, you will be wealthy enough to quit your job and retire. Life will actually begin for you at 40. So, ditch the small time pleasures, set aside a little money every month, and keep adding to it every time your income increases.
Even if you are not in your 20s, it will be great to start now, by putting aside some money every month. The best time to invest was in your 20s, the second best time is today.