According to a report on Millennials, by Morgan Stanley Capital International (MSCI), on a global level, millennials represent around 23% of the world population. millennials have a wide range of access to and knowledge of recent technologies, along with a fair idea of the investment options open to them. Even then, it is a tactful task to know where to invest, how much to invest, and which investment options would be the best suited for them. This post is aimed at providing investment advice to new investors, addressing the whats, the whys, and the hows of investing as a millennial. But first, let’s address some fundamental questions:
Why Should A Millennial Invest?
Millennials are likely to feel that they don’t have adequate knowledge about the market, or that it is out of their capacity to invest and take risks. As a millennial, if you’re still indecisive about investing, here are a few reasons why you should consider investing.
Time Is On Your Side – A great advantage that millennials have is that they have a good amount of time to accumulate wealth. Millennials can maximize their returns through compounding, a process to potentially boost your savings, by investing in the market over a long period of time.
Put Your Money To Work – As a millennial, if you keep a mindset of letting your money stay stacked up in a bank, it will slowly lose its value due to inflation. In contrast, if you invest, you can get returns, thus achieving your financial goal faster.
Save Money On Tax – You can get certain tax advantages from some investment accounts, like an Equity Linked Savings Scheme, or a PPF. Your contribution there reduces your annual taxes.
What Should A Millennial Keep In Mind Before Investing?
Investment can be a tricky task for someone just starting out. Therefore, it is essential to know all the aspects involved in investing your money. As a millennial, here are five investment advice to keep in mind before jumping in:
Plan Before Investing – It is crucial to know what the primary reasons are for you to start investing. Are you just trying it out with a small amount of capital? In this case, you can afford to have a larger risk appetite. You will need to be much more thoughtful about where you invest if you’re pouring your life savings into it. However, with this sorted, you will find it easier to decide how much to invest and which investment options to select. To help you with this, you can also approach a financial advisor.
Take Calculated Risks – You have to keep in mind that, to move forward, you will have to take risks. Hence, to reach your financial goals, do not back down from taking certain calculated risks. However, these should not be risks that will put you in a precarious financial situation if things go south.
Choose Investment Options That Suit You – While you are narrowing down on investment avenues, you should level your expectations with the projected returns of the investment scheme. You can consult a financial advisor to provide you with in-depth investment advice, like choosing a particular investment option from a wide range like investing in mutual funds, stocks, public provident fund (PPF), retirement plans etc.
Design Goal Oriented Investments – If you are focusing on achieving immediate, short-term, or smaller financial goals, then your choice should be to invest in short-term funds or schemes. On the other hand, if you are planning on achieving larger and far-reaching goals, you need to beat inflation by making long-term investments.
Avoid Debt-trap – As a general trend, millennials are drawn to quick success without much thought to the probable drawback of that. Since investments are a quick way to financial success, therefore millennials tend to fall into debt to invest in schemes.
How Can Millennials Invest Their Wealth
Amongst millennials, there is a trend of diversifying in several avenues. If you are a millennial, the best investment advice for you will be to invest in equity, retirement funds, mutual funds and insurance, and public provident funds. Here is a more detailed explanation of the available options.
Equity/Stocks – In the long run, if you want to make investments seeking high returns, you cannot ignore the stock markets. Older millennials usually make higher direct equity investments. The richer millennials invest nearly double that, as higher income levels provide a cushioning that enables people to take a greater risk. However, this option has the greatest risk.
Mutual Funds – One of the favorite investment options of millennials, irrespective of their income bracket or age, are mutual funds. The reason for this is the organized management, the ease of investment, and the availability of several funds. Most choose to commence their mutual fund journey in tax-free investments like an Equity Linked Savings Scheme (ELSS). This category is best for long-term investments.
Insurance And Retirement Plans – If as a millennial, any of your concerns revolve around advancing age and the pitfalls related to it, then the best option for you is insurance and retirement plans. You can subscribe to a suitable life insurance plan, which can also act as a financial safety net for the members of your family. Along with that, it is also beneficial in saving money on taxes by investing in insurance.
Public Provident Fund – PPF is one option a lot of millennials consider. PPF has a tenure of 15 years, which is beneficial for millennials because they have a considerable amount of time in their hands. Furthermore, because the interest acquired and the principal invested is supported by a sovereign guarantee, this makes PPF a safe investment.
As a baseline, even though investments need to be made carefully, a millennial should open up to investing their wealth in mutual funds, retirement, and insurance plans or equity because they will get higher returns than just a savings account, and consequently save on taxes. Millennials should start early so that they can utilize the time in a planned way. For more on how to start (and maintain) your financial journey, head over to the EarlySalary blog.