Ride the stock market or invest in Mutual Funds – a tough choice for millennials today. If you can relate to this dilemma, read on and clear your mind!
You don’t have to be an economist to realise how different the current generation’s spending and saving habits are in comparison to its predecessor. While the latter preferred to prioritise long-term savings plans and spend only on necessities, the former values the present and wants everything out of life right now.
It’s clear from this difference that an expert from Generation X cannot advice a millennial on financial planning. That’s why we’ve written this post exclusively for today’s youth. One of the common dilemmas youngsters face is whether to play the stock market or go the Mutual Funds way. If you’ve faced this problem before, read on and clear your mind right away!
Additional Reading: Are You A Noob At Investing? Here’s Everything You Need To Know!
As a youngster, here’s what you need to keep in mind before choosing between the above two paths:
The risk factor
Simply put, your risk factor refers to how much money you could lose if the investment you chose drops. It also relates to how uncertain the market climate of the investment is. When it comes to this comparison, it’s safe to say that Mutual Funds are less risky compared to stocks.
How are Mutual Funds safer than stocks?
The answer is – by their very nature. The best way to understand this is to revisit the popular phrase “putting all your eggs in one basket” – this is a good way to describe your investment in a stock. When the company you invest in loses money, so do you.
Mutual Funds on the other hand are all about distributing your eggs among different baskets, or in other words, investing in different stocks. In this case, if one company’s stock goes down, your share may still be safe if another company whose stock is a part of your Mutual Fund portfolio does well.
Additional Reading: Why Mutual Funds Score Over Stocks
The first-timer factor
The thing about the stock market is it can take you up to cloud nine but also plunge you deep in loss at the very same pace. This is why stock markets are usually ideal for veteran investors who have vast knowledge about shares and have buffer money to put into stocks.
For a first timer, stocks may not be the best start, purely because you’re new to the market and not expected to know it in and out. You want your first steps into the world of investment to be secure, and Mutual Funds are certainly the way to go.
Additional Reading: Avoid These Do-It-Yourself Investment Mistakes
The returns factor
Stocks are popular for a reason due to their propensity for quick and high returns, but with all that excitement comes high risk as well. Unless you have thorough knowledge about the stock market, you don’t want to blindly swing for a home run and strike out, right?
As a budding investor, you can always learn about stocks and aspire for high returns in the future, but for now, you can catch the pulse of the market by investing in Mutual Funds and absorb all that you can in the next 3-4 years.
Post that, whenever you feel like you have the market sense to take smart stock decisions, you can always partially invest and see how you fare.
Start saving anyway
Whatever you decide to do, the one common thing that you need to crack in order to get your investment plans into execution mode is to start saving and build enough to consider investment options. One of the biggest challenges millennials face is creating a stable savings habit.
According to recent findings, a majority of a typical millennial’s income is redirected towards EMI payments and bills. In addition to this, the present generation’s Carpe Diem approach to life introduces travel and entertainment expenses too, leaving behind only a negligible amount for savings or investments.
All clear about your investment roadmap now? Why not start right away!