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Ten, must do things for a young investor / small business owner

Monday, June 10, 2019

Anurag Bhatia, Founder, Minance

Investing is a skill that is best learnt as early as one can. Investing over time gains the ability to learn, test, and improve knowledge when it comes to the markets. Here are 10 things every young investor should have the knowledge before investing.

Set a goal: While the ultimate objective is always to make money, it helps to frame your investing goal. It could be as abstract as wanting to save 20% of your salary every month to something concrete as saving for a new bike in 2 years. Once the goal set, plan the investments accordingly to achieve it.

SIPs are your friend: One of the best things one can do is to set up an mutual fund SIP. The monthly investment goes a long way toward building discipline and fostering the idea of investing regularly. SIPs also help investments get spread out over time, reducing the effects of short market disruptions.

Diversify: The markets are always fraught with risk, but can be managed by diversifying the investments. The money should be distributed among multiple mutual funds, stocks, bonds, and other investment opportunities.

Take risks: Capacity for risk-taking is highest when one is young.  As we grow older, our appetite for risk will fall but so will the potential for outsized returns. So take measured risks, invest directly in stocks, explore derivatives, and be constantly on the hunt for good investment opportunities that we can afford to take.

Invest in our self: Investing can’t be learnt overnight, so need to spend time (and money) learning about the markets, the different opportunities and risks it entails. It can be worth our while to hire the services of an expert, an investment advisor or a wealth manager can help you plan your investments and can supplement gaps in our knowledge and skill.

Plan your taxes: Far too many people think they cannot do anything about their taxes. This is not true. Understanding your taxes and learning how to mitigate them (for example by using ELSS mutual funds, or claiming business expenses) will help you manage your money better and make the best returns from your investments.

Buy Insurance: Medical and Life Insurances are a vital part of your portfolio, do not see them as expenses but rather as necessities. Getting insurance when you are young also means lower premiums and as a bonus, you can claim tax deductions.

Manage your credit: Learning to manage your credit, be they loans or credit cards, is something every investor needs. A good credit score means better loan rates and easier access to credit which you will need if you plan on buying a home, a vehicle or fund further education.

Periodically review your investments: Your investments need attention and while you don't have to be a helicopter parent, you do need to monitor performance. Follow economic and market trends and set alerts on your stocks and funds. Make it a practice to review your investments every 6 months or so. Enlist the help of a advisor if needed. This will help you spot bad investments early and foster good ones.

Be patient: In my experience, one of the most catastrophic mistakes investors make is a lack of patience. The greed for quick returns causes them to take needless risks but when the tide turns, few have the stomach to face losses. Understanding when to cut your losses and when to stand firm is what will decide your success as an investor.

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