How to Start Investing in your 20s | CA Rachana Ranade

Summary

This video provides essential insights on how to start investing in your 20s, emphasizing the importance of early investing. It covers three key reasons for starting early: building a large retirement corpus, benefiting from risk averaging, and leveraging compounding. The video also highlights common mistakes to avoid, such as following unqualified advice or investing without knowledge. It explains where to invest—equity and debt—and offers strategies for diversifying investments. The speaker stresses the significance of financial discipline and provides practical examples to show how consistent, early investing can yield substantial returns over time.

Takeaways

• 😀 Starting to invest in your 20s can lead to a significant corpus for retirement by age 60, as early investments benefit from long-term growth.
• 😀 Risk averaging is crucial: Regular investments over time, especially during market dips, help reduce overall risk and enhance returns.
• 😀 The power of compounding is immense: Investing early with a disciplined approach, like SIPs, can result in substantial returns over decades.
• 😀 Starting with a monthly investment of ₹10,000 and earning 10% returns over 39 years could lead to a corpus of ₹5.76 crore.
• 😀 Delaying investments can drastically lower returns—investing at 40 results in a much smaller corpus (around ₹76 lakh).
• 😀 Avoid relying on friends' investment tips or following the crowd—blindly investing based on others’ advice can lead to losses.
• 😀 Gain proper knowledge before investing in the market—investing without understanding can lead to poor decisions and losses.
• 😀 The herd mentality can be harmful—don't invest just because others are doing it without knowing why.
• 😀 A standard thumb rule for equity allocation is '100 - your age'. For example, a 25-year-old should invest 75% in equity and 25% in debt.
• 😀 Equity investments can be made through direct stocks, index funds like Nifty, or via themes such as top 100 companies by market cap.
• 😀 Diversify between equity, debt, and gold to balance risks. For example, invest in PPF, gold funds, or debt funds to create a robust portfolio.

Q & A

Why is it important to start investing in your 20s?

Starting to invest in your 20s allows you to build a larger corpus for retirement, benefit from risk averaging, and experience the compounding effect of your investments over a longer period.

What is risk averaging, and how does it work?

Risk averaging refers to investing consistently over time, which helps reduce the impact of market volatility. By continuing to invest during both market highs and lows, the risk of large losses is averaged out, as seen in the example from the 2008 market crash.

How does compounding work in the context of long-term investing?

Compounding means your investment earnings generate their own earnings. Starting early allows you to accumulate more wealth, as the interest on your investments compounds over time, leading to exponential growth in your portfolio.

What would happen if you start investing at age 40 instead of age 21?

Starting at age 40 instead of age 21 would result in a significantly lower corpus by retirement. For example, investing 10,000 rupees monthly at age 21 could yield 5 crore rupees by retirement, whereas starting at age 40 would only result in around 76 lakhs.

What are the top mistakes young investors should avoid?

Young investors should avoid following unsolicited tips from friends, investing without proper knowledge, and following the herd mentality, where investments are made based on what others are doing without understanding the rationale behind it.

How should young investors allocate their investments between equity and debt?

A general rule of thumb is that the percentage of your investment in equity should be 100 minus your age. For example, if you're 25, 75% of your portfolio should be in equity, and the remaining 25% should go into debt.

What are the different options for investing in equity?

You can invest in equity directly by buying individual stocks, or you can invest in thematic funds or indices like Nifty. For those unsure about individual stocks or themes, investing in Nifty-based funds can be a simple option.

What is PPF, and how does it fit into a young investor's portfolio?

PPF (Public Provident Fund) is a government-backed savings scheme with a lock-in period of 15 years. Starting early in PPF can provide a tax-free interest return and the benefit of long-term compounding, making it an ideal option for young investors.

How can young investors invest in gold or debt funds?

Investing in gold can be done through gold funds, which act as a hedge against market volatility. Debt funds, such as those investing in government bonds or corporate debt, are safer but typically offer lower returns than equity.

What is an 'all-weather investing' strategy, and how can it benefit young investors?

The 'all-weather investing' strategy involves diversifying investments across various asset classes like equity, gold, and debt. This approach can provide a more stable return over time, reducing the risk of market volatility, and can be implemented with small case funds designed for such diversification.