I have had the luck of dealing with many kids doing their investing. So I see a huge variety of kids. Let me describe some of them..
One girl from a very low income background kept saying ‘Mutual Fund Investing is subject to Market risk’ she never understood the risk of NOT investing. All her money is in bank fixed deposit..as she turns 30 she is still only in fixed deposits.
One girl from the south of the Vindhyas is convinced that she should invest only in real estate. Great thought. As she turns 34 she has no house (she is waiting for the RE prices to fall), and all her money is only in Fixed deposit – BY DEFAULT not by design.
One boy believes he can pick stocks himself. Refuses to share his portfolio, claims he beats Hdfc Top 200 over the past 3 years. However, he refuses to share transaction details. No clue.
Before you open a brokerage account, or even doing a SIP there are other financial things to get in order first. Your high-interest credit card debt needs to be paid off, and from then on you should be able to pay your monthly bill without accumulating debt EVER again. If you have student loans, make on-time payments preferably more than the minimum that the bank asks you to pay.
In short, pay off any high interest debt and be able to make payments on low-interest debt until it’s all gone. Once done, then work toward building up savings and you can use the funds for investing. Take a term insurance as per your requirements. Now look at the Gen Y investing mistakes…
Instead of telling you about all my experiences…let me classify the mistakes by Gen Y / Millennial Investors:
- Start too early: Yes you read right. When you start investing…you do not really require a demat account..you require it much later. First you need to invest in equity education. If you do not know how to invest, and the difference between trading and investing, the stock exchange is a very expensive place to learn. And worse, it takes the fees in advance.
- Start too late: When you start investing you need to follow the following sequence- invest in education. If you are not ready to invest in equities education, invest in a big ELSS with a good track record. Once this is done invest in an Index fund.
- Listening to parents who are financially illiterate themselves. I know 2 professionally qualified siblings who listen to their father who was a clerk in a government company.
- ‘Investing’ in products which are actually savings products like endowment plans, PPF, Nsc, etc.
- Ignoring taxes: Investing in bank deposits for 80C benefits and paying tax on interest instead of investing in ELSS
- Ignoring fees: Understanding tax, asset allocation, and cost of fund management is very important. You can only minimize fees and costs. Remember good advice is worth its weight in gold, and free wrong advice can be very expensive!!The most important way to be a successful investor is to learn meditation which helps you to stay calm, even when the market is volatile. The more diversified your investment portfolio and the longer you hold onto your investments before selling shares, the less likely you’ll be affected by downward drops in the market. Even from a tax point of view investments held for a longer period get taxed lesser. Also, if you continue to buy investments systematically throughout the market volatility this is called ‘sip’ investing and uses ‘Rupee Cost Averaging’ and can help lessen the risk of buying a single fund at a specific time.
If you prepare yourself financially by paying down debt and building up savings, investing for the first time shouldn’t be a very difficult or scary experience. Pick your ELSS, term life insurance, adviser, with fees in mind, set up a SIP each month from your savings account, and do some research into what investments you’d like to make. Keep a level head in all market conditions – good times and bad – they follow each other anyway. Once you have invested, let compound interest work for you.
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