2020 alone saw over 1.04 crore active investor accounts opened, the highest ever in a single year. Surprisingly, a large chunk of the millennial population is investing in the stock market. The relentless stock market rally post-COVID since the March 2020 steep correction has fueled this growth, inviting many young, new investors into the stock market.
The millennial way of investing has also changed how these new investors look at the stock market. Sixty-four percent of the young minds prefer mutual funds, followed by equities (28 percent) and followed by gold. The traditional investment options like PPF and bank fixed deposits are not seeing much traction in this new wave of investing.
Another notable difference with the millennials is the age when they start investing – they start young, in their mid-twenties. However, more than 60 percent of millennials started investing before they were 30. So, it allows them to save more over time as they have begun much younger, almost another 30 years to retirement.
What are the things that such investors can keep in mind while investing?
1. Start Young
As a young investor, you will always find reasons not to save money —the tricks of the modern-day world and the modern-day definition of enjoying today will tempt you. However, every penny you spend today allows you to spend much less tomorrow.
The younger you start, the better it is for your portfolio to grow. It is okay to start with a small amount, but starting in your early twenties is essential.
2. High-risk Appetite
If you are in your early twenties, you tend to have a higher risk appetite. So, you may likely invest in riskier assets like equities and mutual funds against traditional options like PPF and fixed deposits. As a result, millennials find equity investments more lucrative and highly rewarding than any other asset class.
3. Diversification
The complicated world of finance and investment may not be everyone’s cup of tea to master it. However, lack of expertise should not be a barrier to investing. In the beginning, you should identify the right mutual fund. A mutual fund is a well-diversified investment asset managed by finance professionals and experts. Such instruments allow you to diversify your money into different stocks and sectors to minimize the risk. As experts work these funds, you do not have to track their portfolios day in and day out. Instead, you may choose to review your investment holdings at regular intervals.
4. Nominal Capital Requirement
The stock market is one such investment opportunity that does not always require huge capital, to begin with. Against this, real estate will always need more money, even to buy one unit of property. However, stock markets allow you to start with as low as INR 500 per month in mutual funds. Therefore, this asset class’s most significant advantage is a boon for young investors.
5. Be Disciplined – Do Not Mix Trading With Investments
Discipline and consistency can take you places where your intelligence can’t’. Well, this is true for your investment journey as well. As a young investor, you must focus on your long-term plan. If you plan to stay invested for ten years, do not sell everything in 6 months. Do not trade with your investment portfolio. Do not mix your trading portfolio with your investment portfolio. If you like trading, separate it from the investments as it will allow you to cap your losses in trading and will not affect your long term as your investment portfolio is intact.
6. Be Consistent – Systematic Investment Plan
Consistency and regularity are two critical pillars for any successful investor. With the help of SIP, you invest a fixed month every month at a fixed date in the selected mutual funds.
A systematic Investment Plan (SIP) is one of the most powerful and consistent investing methods. It is the most preferred way of investing as it allows you to invest even a small amount every month. Investing in stocks and mutual funds in the form of SIP can help you achieve your goals and instill financial discipline.
- A small and regular monthly investment of INR 1,000 can compound and grow to more than INR 70 lakhs in 30 years.
- A small and stable monthly investment of INR 5,000 can compound and grow to more than INR 3.6 crores in 30 years.
(Assuming an average rate of return of 15 percent per annum)
7. Stay Longer – Compounded Returns
Timing the market is not essential. But, time spent in the market is crucial. “”Compounding is the 8th wonder of the planet. One who understands it earns it. One who doesn’t‘ pay for it“.” Time is the most significant investment you can make. It holds with your stock investments as well. For example, a simple INR 10 lakhs rupees investment becomes just over INR 65 lakhs in 20 years, but if kept for another ten years, it will become close to INR 1.75 crores, i.e., three times what it was ten years back.
*This calculation assumes a 10 percent rate of return.
Read more: How Long-term investing helps create life-changing wealth – TOI.