MAHESH PAI emphasises the importance of financial stability through investments in the lives of young people by offering advice that will help them in the long run.
Investing is a critical component of personal finance as it plays a major role in securing financial stability and achieving long-term financial goals. It is a key driver of wealth creation and can help young people grow their wealth, beat inflation, and prepare for the future. The importance of investing for young people cannot be overstated, and it is crucial that they start investing early to maximise their returns and build a strong financial foundation. However, many young people are intimidated by the world of investing and feel like it is only for the wealthy or the financially savvy. In reality, investing is an accessible option for everyone and can be a smart move for youngsters looking to secure their financial future.
Here are some tips for youngsters looking to start investing:
Start early: Power of compounding
It would seem unimportant to set aside money for investments. You tend to ask yourself, “Why not wait a few years until I have more money to spend and save before I start investing?”. Sadly, this cycle never comes to an end. By the time you understand the value of investing, you might no longer have time on your side. You cannot underestimate the power of time, compounding is one of the greatest advantages of investing. The earlier you start, the more time you have to let your investments grow. Even small contributions made consistently over time can make a big impact in the long run. The longer the investment period, the more compounding works in your favour, allowing you to grow your wealth exponentially.
Diversification: Reducing Risk
Another key benefit of investing early is diversification. Diversification is the practice of spreading investment across different types of assets to reduce risk. By diversifying your portfolios, you can reduce the exposure to market volatility and protect your money during market downturns. Diversification can also help you maximise your returns over the long-term by taking advantage of different market opportunities. For example, you can diversify your portfolios by investing in mutual funds, stocks, bonds, insurance, and other assets. By doing so, you will reduce the risk and increase the chances of success over the long-term.
Set realistic goals
When it comes to investing, it is important to set realistic goals. This means taking into consideration your risk tolerance, investment time horizon, and financial situation. Consider factors such as age, job stability, and overall financial health when determining how much you can afford to invest. Another important aspect is to make sure that the goals set are your goals. It is easy to look around at what other people are doing and feel like you should be doing it too. Your financial goals need to make sense to you and be clear as to why you have chosen the goals you have.
Long term goals and emergency funds
Young people often have long-term financial goals such as buying a home, starting a business, or saving for retirement. Investing can help you achieve these goals faster and with greater ease. While you invest into your future goals make sure that you have enough amount in your emergency fund i.e minimum of six months income under a liquid fund for any contingencies that may arise. It is always better to plan and be prepared.
Be patient
Investing is a long-term game, and it is important to remain patient and not get discouraged by short-term fluctuations in the market. Keep your focus on your long-term goals and don’t let temporary dips discourage you. Being patient and staying invested may look like a dull strategy, but it has generated profitable returns in the long run.
Start small
If you are new to investing, start with small contributions and gradually increase your investment as you gain more confidence. Don’t feel like you have to invest a large sum of money all at once. Since the investment tenure is longer, there is no problem if the amount is small but increasing that amount year on year will create wonders for your portfolio. Wealth creation is a long term process and does not happen overnight and as a young earner the biggest advantage you have is time.
Conclusion
Early investing can teach you the real difference between saving and investing. Investing can seem overwhelming, especially for young people who are just starting out. However, by taking small steps and educating yourself, you can build a solid foundation for your financial future. Keep it simple; don’t over complicate your investment strategy. Focus on a well-diversified portfolio and stick to your long-term plan. With patience, discipline, and a well-diversified portfolio, you can reach your financial goals and secure your financial future.