How to successfully invest in your 20s?

We often think of our 20s as the decade of ambition and enjoyment. When we hear the term invest, most push it to their 30s because we believe that’s when the responsibilities kick in. 

But why should you invest in your 20s when it’s your time to enjoy life and focus on your career right? 

If we have to be honest with you, you don’t have to forget your leisure to start investing in your 20s. You just need to willingness to grow your wealth and beat inflation. Besides, if the year 2020 has taught us anything, it is uncertainty. We have learned the importance of saving and returns. 

Your 20s are your best time to start investing! You have the time and the financial freedom to do things for yourself, and you open room for more returns in the long run.

How to invest effectively in your 20s?

Follow the 50:30:20 rule.

The 50:30:20 rule is probably the best rule that was thought of to manage your wealth. Most gurus advise this wealth management rule and apply it too. It’s the best way to have the best of 3 worlds. 

The 50:30:20 rule implies that 50% of your income is solely for your needs, 30% is strictly for your wants and desires, and 20% should be dedicated to your investments. 

Determine your investment goals and do your research accordingly.

It is imperative to determine the investment goals and percentage returns you want at the end of your investment term. There are several ways to invest—mutual funds, Equity, Bonds, Gold, Fixed Deposits, Real Estate, to name a few. Choosing what method suits your current financial ability and helps you reach your investment goals is critical. 

Determine your investment goal, go through your options, and always calculate the amount you will be compounding on an average by the end of your investment term. We will talk about compounding and the importance of compounding below. 

Understand and learn the importance of compounding. 

Compounding or compound interest by definition is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest. It results from reinvesting interest rather than paying it out so that interest in the next period is then earned on the principal sum plus previously accumulated interest.

In simpler words, compounding is a percentage increase in assets over a certain calculated period. 

Let’s say you invested ₹ 5000 every month for the next ten years at an expected annual return of 15% p.a, you have invested ₹ 6.05 lakhs, and your return on investment would be ₹ 14.15 lakhs @ 15% p.a.

Hence, you must determine your investment goals and do your research accordingly because each method of investing has a different percentage return. While some methods such as fixed deposits and bonds may give you an annual return of 5-10%, investing in equities have the ability to provide you with investment returns of 20% or even more p.a. 

Warren Buffet, one of the richest men in the world, when asked what is his secret behind becoming a billionaire, advised compounding. He says that compounding is an investors’ best friend and compares building wealth through interest to rolling a snowball down a hill. “Start early,” Buffett said. “I started building this little snowball at the top of a very long hill.”

Refer to our blog on The power of saving or the power of compounding to dive deeper.

Be cautious with your investment decisions.

It is pretty determined that investments are subject to market risk. Making the right investment decisions are crucial for your future. Fixed deposits are always the safer bet, but the return on investments is also low. 

We also know that investing in equity can give you maximum returns. But the drawback that comes along with it is Buying and Selling stocks at the right time. To counter this, you can either let professionals handle your portfolio or if you would like to make your own investments do not hesitate to take some guidance.

You can use trusted apps like the Cycle app. It gives you free BUY, SELL signals to help you make more profits and save losses.

Following signals of an app like Cycle also gives you the chance to increase your investment returns. 

Leave a Reply