How do I start investing?
might have just finished your education, or you might have just started earning. So,
this is a very important phase of your life, when it comes to starting investing early. So,
if you want to know about all these basics, let’s begin right away.
Let’s understand the top 3 reasons, why you should start investing early. So, the very first reason
if you remember, I said mere past work there. So, if someone starts investing at the age of
21 or 22, you can imagine that that person will be investing from this age, till the age of 60
almost. So, you can imagine what a big corpus that person will have for his retirement purpose,
right, number one. Number two is that, because you start early you have the benefit of risk
averaging. Now you will be like, what is this risk averaging? Just have a look at this nifty chart.
Now I’ll give you a practical example. I qualified as a chartered accountant in the year 2008.
Have a look at that chart in 2008. So, that’s where I started investing, and as usual, as a
new investor starts investing immediately there’s a market fall. Everyone knows what happened
in 2008. now you can imagine, had I stopped investing, because in a market as a sister,
okay. Whenever I start investing, it will go down, and all that that would have been a big
negative point for me. What I did, I kept on that discipline of investing at regular intervals. So,
what might have happened? I invested in 2008, I invested in 2009, 10 and now you can see at 11,
already it has come back to the level of 2008. Again, I kept on investing, 12, 13, 14, 15,
20. I’m investing till date, and now you can compare the level of 2008, with the level of 2020.
It has majorly increased, since then so can I say because I invested in a disciplined way
because I invested at every specific time interval, my risk was automatically averaged
out. So, I hope you have understood this pri a point of risk averaging,
and the last important point is that you can have a very nice compounding effect
if you start investing early, but how? is what we are going to check out immediately.
Let’s understand, how an amazing effect of compounding can be seen, if you start investing
early, okay. So, we have to give some basic inputs, inputs, like what you have to give,
your input of your current age, you have to give an input of what will be your retirement age,
right. Third thing, you have to give an input, of how much will be your monthly investment amount,
okay. Generally, we talk about investing very systematically, like like a sip,
systematic investment plan, right, and number four, input that you have to give is,
how much returns do you expect, okay. Let’s say we are taking, we are going to take a return of 10,
which is not very high if I’m going to talk about a longer time frame. So, shall we start in
inputting the data? Yes, okay. So, the very first one is current age. What is your current age?
Okay, 21 21. Okay, at what time do you want to retire? Now I will tell you 60 okay.
Assume 60, how much are you going to invest monthly? Minimum target I’m going to give you
10000 rupees monthly, you have to invest, okay. Let’s assume that you are going to get a 10 return
over how much time time frame? 39 years that’s a longer time frame if you do this systematically
over a period of 39 years. Every single month, without missing even one month, you are going to
get an amazing return, and your final amount is going to be 5 crore 76 lakhs 8714. Amazing!!
Just by investing 10k per month, you are going to get that 5 crore plus amount. Now understand how
compounding works, meri password. How does that work if you start investing at the age of 40?
That amount is going to be just 76 lakhs, okay. I hope you have understood how big a difference
can be created if you start investing early and if you have that financial discipline in you.
Now, let’s understand the top three things, that young investors should
avoid while investing. The very first one is, to follow the advice of your friends Tipendra, okay,
because that person is just going to give you hot tips and you’re going to just blindly rely on him.
So don’t do that. Don’t invest based on Tipendra. Number two mistake, which many people do, is that
exactly that’s what they do. They invest in the market, without having proper knowledge. So,
if you do that again, you’re going to fall flat on your face and you’re going to make losses.
Don’t do that, and number three, is that please don’t follow the herd mentality.
There are going to be many people who are going to just invest because their friends are investing,
and their friends are investing, because their friends are investing,
and none of them knows why they are investing. So, avoid the herd mentality.
Now, let’s try and understand where can you invest your money? I’m sure everyone knows that there are
two major options, one is equity and the other one is debt, okay. Now, question is how much should
you invest in equity? There is a very standard thumb rule, which says that hundred minus your
age, should be your percentage investment, in equity. My math is not that good, so assume that
my age is 25, okay. So, in this case, how much will be investment in equity? It will be 100
minus 25, so 75 percent of my investment should go in equity, and 25 should go in debt.
Now, the next question arises is that, if I were to invest in equity, how and where can I invest
in equity? That depends on certain factors. There are various possibilities. Possibility number one,
is that you invest directly in equities, okay. When can you explore this? You can explore this,
if you have knowledge or, possibility number two, you’re prepared to gain that much knowledge
by maybe uh watching a lot of YouTube videos or checking out my various courses, on my website
rachanaranade.com or whatever. Reading books as well, right. So, that you can do, when you have
knowledge in stock market or you’re ready to gain knowledge in stock market. Possibility number two,
you’re not sure about a specific stock, but you’re sure about a specific theme. We are going to talk
about this in the immediate next part of the video, right, and possibility number three
is that you are neither sure about a specific stock, nor are you sure about a specific theme,
but you are sure about the overall direction in the market. So, you remember that nifty chart from
2008 to 2020, it has gone in the upward direction. So, you feel that all in all, it will go up. So,
I want to invest directly in nifty. Can you do that? Answer is yes. By investing in nifty b’s.
For that, I have a separate video on how and what are these, what are the different types.
So, whenever time permits, you can check out that video as well.
So, now let’s understand how can we invest in a specific team. Theme of investing with
a small amount and theme of investing in top 100 companies. Top 100 based on what? Top 100 based
on, their market capitalization. For that, we have a top 100 small case, which invests in Nippon
India. Nifty 50 BCTF, and Nippon India, junior BCTF, the weightage is also very clearly given.
32.98 and 67.01 respectively. Now, if you check the overview as well,
this this small case has clearly outperformed. The equity large-cap. We also need to check what
is the minimum investment amount. It’s just 554 rupees. What is the CAGR? CAGR is 16.91.
So, I think both our purposes of investing in top 100 companies by market capitalization,
with a small amount, or just 554 rupees, is very well suited in the small case. So,
if you want to start your investment journey, just check out the link in the description box. Also,
if you want to have a little bit of higher risk, there is one more small case, which is known as
the value and momentum small case. You can also check out the link in description for that,
but again be aware, that second small case is only for those, who are ready to take a shade
higher risk. Let’s understand, how can you start investing in debt. Now there are two options that
we are going to discuss. Primarily, today one is investing in PPF, the other one is investing in
alternate funds like what? Something like a gold fund or something like a debt fund, but first
let’s start with PPF. Very first and foremost point that you should know about PPF is that it
has a lock-in period of 15 years. Why am I talking about these 15 years? If you start early, you
will be comfortable at a very young age. Means, what I started investing in PPF when I was 21,
and in the next year in. If I’m talking about current scenario, in the next year
I would have completed my 15 years, okay. So, calculate my age, that’s homework, but anyways,
next year I would have completed 15 years. So my major lock-in is over. Now, can I extend my PPF?
Yes. Now, extension happens only for five five years. So, my lock-in is drastically reduced
now. So, I hope you have understood the importance of starting your PPF at a very young age. With how
much amount can I start investing? Only with 500 rupees you can start your investment journey in
PPF. You can invest 500 rupees every month, that is allowed. What is the maximum limit maximum?
Limit is 1 lakh 50 000 rupees. Whatever interest you’re going to get, is going to be absolutely
tax free and the interest rate currently is 7.1, right. Also, you get a benefit under section 80c
of the income tax act, when you invest in PPF right now. Let’s move on with the second point
that we are going to talk about. Investing in gold fund or investing in a debt fund.
If you invest in gold, we typically say that gold act as a acts as a very good hedge, against the
market volatility. It’s always said that equity and gold move in the opposite direction, okay. So,
that’s why I’m saying that investing in gold makes sense, as a good hedging parameter. Second one
is a basic thumb rule. Wherein, we say that never put all your eggs in one basket. So even if PPS
PPF is good, don’t invest entirely in PPF. Invest some in PPF, some in gold, some in debt. That will
give you good overall balancing. Number three, if you’re investing in gold or in debt, there
is a chance that you may earn a shade higher than 7.1 percent, right. So, I hope you have understood
that even if I’m talking about investment in debt, there are various options available in the market.
Now, let’s understand how can a portfolio allocation be done? Is this the only way
wherein the portfolio allocation can be done? No, this is just an example, that I’m telling you.
Now, if you observe very carefully, I’ve done two major parts. The left one, which talks
about 75 percent, that is investing in equity, right. One talks about investing in debt. Now,
if you check out debt, I have given 25 equal allocation to PPF and to gold, debt funds,
okay. Can that percentage vary from investor to investor? It can. Have given this as an example.
If you go to that 75 percent category, now they have given different splits, based on what? Based
on the investors’ profile. Three category of investor profile. Low-risk, moderate risk,
and high risk. Here you can see that a person was low risk. Have given zero percent for stock
SIP’s directly into stock market and if you see the highest category person, you can see that 45
allocation can be given indirect, in equity investing. So, all in all, I hope you have
understood how based on risk profile. Your equity exposure, the way in which you invest in equity,
can change from person to person. If you want me to make a separate video on how to calculate risk,
please let me know in the comment section. I’ll make a separate video for you.
Well, is there any small case which talks about investing in equity, in debt, as well as in gold,
all at the same point in time? Answer is, yes. The name of that small case is all-weather investing.
Of course, again link is there in the description. This small case has given a CAGR of almost 13.63.
Well, I hope you have enjoyed this video and if you have, don’t forget to share it
with your friends. Even if you are not in your 20s, even if you are there in your 40s or 50s,
you can share it with your neighbors, with your relatives and help me spread financial
literacy and financial awareness amongst everyone. Till then take care and bye-bye.
Originally published at https://personalfinanceindailylife.blogspot.com on February 21, 2022.