Make sure you start your life after studies on the right financial foot by treating your financial future seriously while you’re still in college, Madhu Sinha explains
The Indian youth never had it so good. On the consumption side, the choice of goods & services available is unprecedented. And as far as income is concerned, given the blooming economy & its ever improving prospects, opportunities have ever been better! So, the youth is earning a lot & spending a lot! It’s definitely a happy situation to be in!
As a college student, you should be focusing on your financial future as well as your studies. No, not the financial future consisting of next week’s pizza fund, but your long-term personal financial future. Make sure you start your life after studies on the right financial foot by treating your financial future seriously while you’re still in college.
Young investors have an edge over others on account of their age. In other words, a young investor has more time on hand as compared to middle-aged investor or one who is nearing retirement. Young investor can take higher risk compared to middle aged investor or nearing retirement investor. This in turn affords young investors greater flexibility while making investment decisions.
If we take simple example, most of the young spend Rs. 500 per month very easily on food, entertainment, etc, how much money they are losing in future, is illustrated with the help of power of compounding method.
Power of compounding
Years | 12% return p.a. | 15% return p.a. |
0-5 | Rs. 40,835 | Rs. 44,287 |
6-10 | Rs. 1,15,019 | Rs. 1,37,609 |
11-15 | Rs. 2,49,790 | Rs. 3,34,253 |
16-20 | Rs. 4,94,628 | Rs. 7,48,620 |
21-25 | Rs. 9,39,423 | Rs. 16,21,765 |
26-30 | Rs. 17,47,482 | Rs. 34,61,640 |
The percentage of younger generation in India is more compared to old. Over the past couple of years Indian economy has seen unprecedented economic boom leaving more surplus money in the hands of people. The young can use financial planning route to meet their future financial goals. They have their whole lives ahead of them, and ample time to plan for every goal including retirement. The problem with the masses is that they do not plan for their finances. Some who have a decent salary packages and decent amount of surplus available also invest without doing proper asset allocation in various asset classes like equity, debt, real estate, gold, etc.
There are various investment avenues available to young investors and the various facets of each avenue like small saving schemes, equity, mutual funds, ELSS, unit linked insurance plan, etc. Today youth should ensure that he is associated with the right investment advisor at all times. He could well be the individual who plugs the gap between youth achieving or not achieving his financial goals and objectives. Financial markets have become very complex and there are varieties of products available to choose from. The choice of product will depend upon:
Age of the client
Time horizon of investments
Risk appetite of investor
Need of the investor
As a rule of thumb, a person shall invest % of his portfolio in debt equal to his age and the remaining amount in equity after providing for sufficient amount in the form of liquid assets / cash for emergency provision. A person shall also plan for the purchase of residential house. A young person has a high risk appetite and the time horizon of investments is also long, he should invest more money in equity and equity related instruments and fewer amounts in debt. When a person starts working, his income level is also low and there is very less surplus available for investments after meeting his monthly expenses. Every young person would like to become rich very fast.
The small amount of saving per month if done in a disciplined manner and systematically will lead to a higher amount of wealth accumulation over a longer period of time. If a young person of age 23 starts saving Rs. 2,000 per month till he is age 60, he will be able to accumulate Rs. 3,96,06,204, if rate of return on investments is 15% p.a. In this case I have not taken into consideration the increase in salary and thus increase in amount of investments.
The young investors have to first do their asset allocation. After deciding about asset allocation, the choice of products will start.
The writer is a certified financial planner and an associate dean at International College of Financial Planning.
Read more:
Good habits to manage your finances
Power of compounding… A motivating story
Aug 09, 2022
Aug 09, 2022
Aug 09, 2022
Aug 09, 2022
Aug 08, 2022
Aug 08, 2022
Aug 08, 2022
Aug 09, 2022
Aug 09, 2022
Aug 09, 2022
Aug 09, 2022
Aug 09, 2022
Aug 09, 2022
Aug 09, 2022
Aug 09, 2022
The laws of the financial world are different from the physical world. You can have prolonged periods of time, when sanity takes a back seat and excesses happen.
R. Venkataraman Aug 20, 2021
Retail trading or day trading has exploded because of falling brokerage rates, democratization of information, higher transparency and mobile platforms.
R. Venkataraman Jun 15, 2021
My simple message for dear readers is, if you don’t have any desperate need for funds, then don’t do anything.
R. Venkataraman May 12, 2021
The blow up of a US hedge fund has resulted in WhatsApp university offering many courses on what went wrong with Bill Hwang and Archegos.
R. Venkataraman Apr 09, 2021
The expensive valuations have been sustained by strong rebound in corporate earnings which led to ~8% upgrade in FY22 Nifty EPS since October 2020.
R. Venkataraman Mar 26, 2021
We believe the interest rates are likely to have bottomed due to inflationary pressure, large government borrowings and normalizing credit growth. Hence rate sensitive sectors should be avoided in our view.
R. Venkataraman Feb 17, 2021
As markets make new highs, one gets more emails and messages, which highlight the accomplishments of traders who have found a formula for making money.
R. Venkataraman Jan 27, 2021
Data does not seem to convincingly prove that short periods of high returns are always followed by meagre returns. Only in 4 instances, we had negative returns in the subsequent year.
R. Venkataraman Jan 01, 2021
Since September end, Bankex is up 16% with large banks like ICICI Bank, Bandhan up 20-27%, Housing Finance Companies like Repco, LICHF, PNB Housing are up 50%-100% from their six-month lows.
R. Venkataraman Oct 13, 2020
Morgan Housel’s 'The Psychology of Money' explains in detail the role of human biases in investment decisions.
R. Venkataraman Sep 26, 2020
Per Order for ETF & Mutual Funds Brokerage
Per Order for Delivery, Intraday, F&O, Currency & Commodity