Youth is the time to make mistakes, sure, but some mistakes have long-term repercussions. One such folly is the failure to save and invest their income. Young people are victims of a lifestyle that goes from pay-check to pay-check, as they have recently become independent. Their spending income is essentially their whole income and they realize, too late, that the best time for saving and investing is in the 20s. So, we have compiled a short list of things you should invest in if you are young and have money to invest:
Stocks and Bonds
Stocks and bonds are similar in a manner where they allow you to invest in the future of a company. However, there is a crucial difference between the two and that is the fact that stocks give you a share of the company, while bonds are loans to the company. When you invest in stocks you are buying a small share in the company’s profit and the company pays you dividends if it makes profits.
When you get a bond with a company, the company owes you the principal amount along with interest. The seed investment from stocks can only be made back by selling them while with bonds the company owes you the entire sum after a pre-defined duration. The benefit of investing in these two instruments is that they allow you to take risks while you still can. When you are young, you do not need to worry about a risk that can backfire, which essentially provides you a chance to earn higher returns on your investments.
Fixed deposits are more of a long-term investment tool. Usually, seniors opt for fixed deposits but there is no rule that says young people cannot invest in them. The reason being that fixed deposits benefit you through interest on the amount locked in with financial institutions. So, the bigger the deposit, the more interest you will generate. However, the higher FD interest rates available from financial firms like Bajaj Finance make it easy for anyone to invest in them.
When deciding whether to invest in FDs or not, using tools like FD calculator can come in handy. It tells you exactly how much interest you will make over the lock-down period of your choice so that you can make an informed decision.
Mutual funds are perhaps the most trustworthy instrument of investment in the Indian market which is why they make an appearance on every list of investment advice. But, especially for younger people, mutual funds make an appealing mode of investment. They provide benefits over a long duration and prevent one from spending on unnecessary things.
There is another benefit to investing in mutual funds which is their ability to mitigate the dangers of a fluctuating market by diversification if shares. Small-cap and medium-cap shares are usually bought in bouquets that cover different booming sectors. Any ups-and-downs in the market are averaged out by spreading the investment across sectors and the types of shares bought.
These are also known as Roth IRAs and they create a separate fund for when you retire from an early stage of your career. Several employers provide options with varying details that can be chosen by you according to your capacity. As soon as you get your first job, having a talk with your employers about creating a retirement plan is advisable. A major benefit that is associated with retirements funds is the tax benefit up to INR 1.5 lakhs that can be availed under Section 80C.
Finally, commodities are a great option for young people to invest in. These are basic goods that are used in commerce and can be traded with other commodities such as coffee, gold, oil, etc. All these commodities are always in demand and their prices keep fluctuating. But if you open a brokerage account and invest in different physical commodities, you can average out the lows and come out with a good bit of profit. It depends mainly on how much you invest in them.
When you are young, you need to ensure that your investment portfolio is a list of short and long-term investments and the above investment areas cover both these options. So, it is time for you to decide how much do you want to save while you earn at your full potential.