A fixed deposit (FD) or a Bitcoin? Where should you invest your first salary? Depending on who you ask, the answer to where should you begin your investment, will vary.A conservative investor may say that the good-old bank fixed deposit (FD) is safe because the bank never runs away with your money.But then, you earn only 4-5 percent return per annum.Plus, there are taxes.On the other end is a cryptocurrency.
A Bitcoin, perhaps; the rage till very recently.But cryptocurrencies ride a roller coaster.One day your money goes up 10 times, the next day your money can fall 20 times.What’s the middle ground, then? Let’s face the good news first.At 21-23, the usual age of the first-time job-seeker, time is on your side.
You may not need your money so soon.You could, therefore, afford to keep your money invested for a few years before you might need it; say to buy a car, fund your marriage, buy a new house, or even go on a foreign holiday.Here’s where you should start.First ask: Why are you investing? Answering this question will automatically take you closer to the answer to where you must invest.Do you have a near or far investment goal in mind, when you decide to start investing? It could be that you want to invest so that you can travel overseas for an entire month after two years or maybe you want to accumulate money for a down payment on your first house after five years.
Or you may just want to earn the most efficient return or get rich quickly.One universal reason to invest is to create wealth; what you use that wealth for can be decided later.If you consider investing from a perspective of creating wealth, you will start to get clarity on where you can invest.You can further break this up into short-term wealth and long-term wealth.Ultimately, one wants to get rich quickly, however, remember that such a goal will not be easy to fulfil via financial investments.It requires that you make a very high return in a short period of time.
But high returns are abnormal and require you to take an abnormal amount of risk.Taking that kind of risk needs to be backed by a large amount of capital too; you may get lucky or you may lose your capital.Hence, keep only a small portion of your savings for such perceived opportunities.
How to reach your money goals? Bucket your investments into short- and long-term.In that way you can cater to various needs and goals.Short-term investments will cater to needs that may arise in the next 12-14 months, whereas long-term investments cater to wealth-creation over a period of five years plus.Also read: Got your first job? Here’s how you can make tax-saving investments Short-term investments have less time to maturity, hence, risking capital is not a good idea.“Individuals should always invest based on their risk appetite.However, for long-term goals such as retirement, the focus should be on growth and building the mental fortitude required to live through bad market phases,” says Gaurav Rastogi, Founder and Chief Executive Officer (CEO,) Kuvera.in.Nehal Mota, Co-founder and CEO, Finnovate, a hybrid wealth tech platform, says: “In terms of priority, growth or wealth-creation should come first.At a young age, risk appetite is high and time is in your favour.
Investing in growth assets at this stage can set the base for long-term growth in the corpus.The stability goal may come later.However, avoid very high risk such as investing in penny stocks or low-quality debt.” With long-term investments, look for growth in capital beyond five to seven years.
Growth assets like equity and real estate can fulfil this requirement.
Real estate investing requires large capital or a loan.You may choose to invest in a real estate investment trusts (REIT), which is a securitised form of investing in real estate.Here, you can invest in small amounts.However, this too is a long-term investment and at the moment options are not available in residential real estate.
On the other hand, investing in equity is simpler via managed funds like equity mutual funds.Here, you can start investing as little as Rs 500 a month.Experts say the core portfolio should consist of a combination of exchange-traded funds, index funds, and diversified equity funds.Also read : MC 30 funds | Top performing mutual fund schemes “Beyond that the focus can be on other opportunities.REITs can be a good opportunity when real estate prices are turning and debt funds when interest rates are falling sharply.Ideally, this satellite portfolio should not be more than 20 percent of your overall investments,” says Mota.This approach also requires a fair bit of market knowledge and expertise.Hence, this may not be suitable for do-it-yourself investors.
You also have the option of buying shares directly from the stock exchanges, but that requires a fair amount of research and time commitment.Also read: Six ways to protect your job in the current storm of layoffs According to Rastogi, “As one SEBI study shows, 90 percent of day traders fail to make money or that stock market investors on average underperform the index by 4-5 percentage points a year.Stock research and trading is also time-intensive; that time is probably better spent on building skill-sets which will let your income compound exponentially.However, equity is the easiest asset to start with; pick an index fund or multi-asset fund and start.” Thanks to technology you can access many different kinds of investments when you start.
However, instead of going in blind, have a plan.Keep at least 70-80 percent of your savings aside for well-thought-out investments with a proven track record.You can divide this into short-term and long-term investments as you need.Keep the rest to take tactical positions in newer investment options and see what works for you.
In this way, you will not lose a major chunk of your savings even if you take on too much risk with new-age investments like crypto currencies, start-up investing and lease financing options, among others.Related reading: Switching jobs? 6 tasks that require your immediate attention”,.
