Warren Buffet started investing at the age of 11 and still feels that he was late to enter the investment world- confused. Why? The simple reason is Compounding. We all know compound interest from our school days but in the investment world, compound interest performs like magic.
To put it simply in compound interest you earn interest on principal as well as interest, so the longer your money is invested the more time it will have to compound and grow. Having said that investing in your 20s is a great place to start as you don’t have many debts on you, fewer responsibilities, your investment duration is long, and you have a higher risk appetite.
Your investment portfolio largely depends on your goals but it is advisable to have a balanced portfolio (a good mix of risky and safe investments). In this article, we have discussed risky as well as safe investment options, so based on your goals you can customize your portfolio by selecting a mix of investment options from this list.
Safer Investment Options
1) Mutual Funds
In Mutual Funds, a pool of assets is created by collecting money from various investors, and these funds are then invested into various securities like stocks, bonds, money market instruments, and other assets. The reason why is it ideal for naïve investors is.
- Professional Managed- Mutual Fund managers allocate and manage the funds so the investment remains in safe, knowledgeable, and professional hands.
- Diversity- It helps you to invest in a vast number of companies hence decreasing the dependence on the performance of any one company.
- Wide variety of options – It provides you with a wide variety of investment categories like large-cap funds, mid-cap funds, technology funds, value discovery funds, etc. So if you are optimistic about any sector like EV (electronic vehicle) then you can pick up mutual funds related to that.
You can use platforms like Money control, ET Money, Tickertape, etc to get all the mutual fund-related information. Before putting in your money do take into account the investment manager’s experience, past performance, expense ratio, and ranking.
2) Systematic Investment Plans (SIPs)
SIP is an investment option provided by Mutual Funds that enables investors to invest a specified amount in a Mutual Fund scheme on a regular basis, such as once per month or once every three months, as opposed to doing so all at once. The installment payment is like a recurring deposit and could be as small as INR 500 per month.
The reason to opt for this investment option are:
- It helps to build a regular investment habit among investors. It is like an investment discipline that develops.
- Since in SIP you keep investing at regular intervals you don’t have to panic or be worried about market conditions.
- There is no need to time the market while starting the SIPs as your money will enjoy all the ups and downs of the market because of its regular nature.
You can get all the SIP-related information on Money Control, ET money, Tickertape, etc.
A lot of young and single people consider investing in a life insurance policy a waste of their money. But think about this from the perspective that this is also an age when you take student loans, loans for your small business, loans to buy a house, and other debts, in such a situation god forbid if something happens to you then your debt will not end with you.
It will be a burden for your co-borrower and certainly, you don’t want that. Your life insurance will cover all these so that your loved ones are not burdened by your debt. Insurance is a way to hedge against future risk and when you are young insurance companies charge you quite cheap rates.
Before buying insurance research the company’s track record, their reviews, and the company ratings, because buying a policy is a long-term decision and you would want a company that is reliable in long term.
4) Index Funds
Investment funds known as “index funds” track a benchmark index, like the Nifty50 or the BSE Sensex. When you invest money in an index fund, that money is then used to acquire shares of all the businesses that comprise that index, giving you a portfolio that is more diverse than one you would have if you had purchased individual stocks.
Index funds have a lower risk than individual stock ownership since they are automatically diversified and aim to reflect the identical holdings of any index they follow. Market indices often have a solid history.
Some solid reasons to invest in Index Funds.
- These funds have a low expense ratio because they are passively managed
- They are highly diversified
- There are no human biases or gut feelings involved as they have to simply replicate the index.
- Easier to manage
(when you are young the risk appetite is more and hence dedicating a small proportion of your investment to such unconventional investments option is advisable.)
Investing in stocks means buying ownership in the company. Research and awareness are two important traits you need if you want to invest in stocks for the long term. If you have researched an organization well then investing in stock is not risky.
The reason you should jump into stocks early in your 20s is that you can start investing in a company that is small and then as the organization will grow so will your share value. So if you believe in any sector or company then track their performance, invest at the right time, and as the organization will grow so will you.
There are tons of applications like Money control, Stock Edge, ET money, Tickertape, Yahoo Finance, etc to research and track the performance of stocks.
A cryptocurrency is a digital asset that may be used as payment without the aid of a central bank or monetary authority. Cryptographic methods are used to produce cryptocurrencies, allowing users to buy, sell, and trade them in a secure manner.
Why to consider cryptocurrency?
- It has a decentralized system so the power is distributed and not in any one hand
- Since some cryptocurrencies like bitcoin are rare they are considered valuable investments like gold
- It is a secure system
- There is no government control
- Chances of error are quite low
7) Non-Fungible Tokens (NFTs)
NFTs can represent any kind of digital material, including real estate, videos, and jpegs of artwork. These files can be efficiently bought, sold, and traded by being turned into “tokens” and secured on a blockchain, which also reduces fraud.
Exclusive ownership – Physical items like artworks are tokenized using NFTs. By doing this, art is not duplicated and the artist retains sole ownership. As a result, it contributes to the value and scarcity of art.
There is a lot of potential for growth and development in this sector and if you are an artwork fan then NFT is surely an option you should consider.
8) Commodities Trading
Commodities can be a significant tool for investors to diversify their portfolios outside of traditional equities. Some investors also turn to commodities during times of market turbulence because the prices of commodities frequently move counter to those of stocks.
There are 4 simple reasons to consider investing in commodities.
- To give your portfolio diversification. Since commodities and stock perform inversely, you can truly give a balanced portfolio by investing in commodities.
- There is a good ROI
- Commodity market brokers charge a lesser margin for trading.
- Protect against Inflation
Liquid Investment Options
9) Debt Funds
Debt funds are a type of mutual fund that makes money by lending money to businesses and the government. The overall risk of a Debt Fund is based on the length of the loan and the type of borrower.
Earning consistent interest payments and capital growth is the main goal of investing in debt funds. The interest rate and maturity time for debt instruments are defined by the issuers. They are also referred to as “fixed-income” securities as a result.
Why consider debt funds?
- They can have an investment time horizon from 1 day to 3 years.
- You will receive tax benefits.
- Better returns than a saving account without much risk.
10) Emergency Funds
Investing and saving for the long term is good but at the same time always keep a safety fund in place, this fund will serve as a cushion for you in an adverse situation. Now instead of keeping this fund as liquid cash, it is better to deposit it with the bank. Having a savings or current account will achieve 3 aims:
- Your funds will remain secure
- They will earn some interest
- You can withdraw them whenever you are in need