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  • Writer's pictureAvik Chowdhury

Investing for Young Adults: Best time is the moment you get some money

Updated: Apr 25, 2023

Level of understanding required: Beginner

Disclaimer: these are completely my personal opinions. Please trade / invest at your own risk.

Investing for Young Adults
Investing for Young Adults

This is a topic which is very close to my heart. I have benefited a lot myself and would love to see everyone doing so.

I got my first income in the year 2003/4. In those days, I barely saved 5% of my income, having to pay house rent, various living expenses and so on. The amount of surplus was meagre too (I think less than $100 if I remember correctly). However, I always started with the sense that I had to stash up some savings, and invest them too. [Some thoughts on why have been captured in the other blog: ]

How it helped me: I worked from the age of 23 to 33 in a regular job. I had predictable income throughout these 10 years. I had a clear understanding of what would come in and what I would be able to save. Initially, I accumulated a capital (I think about $3000). I invested them in large cap stocks. This was 2003 and there was a bull run in the equity markets till 2007. This capital became 4x in 4 year. Just as the bull run was about to end, I withdrew from the markets and put in a down-payment for an apartment. This was plain luck - I didn't have the knowledge to predict the crash in any way. After this home was done, I started investing surplus in Mutual Funds - through SIP. With power of compounding, the capital over time not only sustains my investment goals, but have been my friend for the next 10 years - when I have tried various entrepreneurial ventures and the flow of money was erratic.

Coming back to 'investing for young adults'. I saw a study on CNBC (from Magnify Money). It says that >50% young investors regret how they have invested their money. Of this >25% have said that they regret not investing more money. I am happy, at least the realisation is there on these lines.

Investing money can be rewarding. In addition to that, the longer one is invested, the better it is. Invested money over 2-3 decades can be very rewarding. However, if that period is 4-5 decades, we are talking multi-millionaires with investments as low as $200 per month.

Have a look at the table below:

Investing for Young Adults
Growth of Value in Invested Corpus

If one invests $200 / month, every year the contribution will be $2400. In 5 years the contribution will be $12000. While this is being done, there will be a return on this amount and I have compounded that quarterly at 15% (Personally, I have safely generated 15%-18% IRR). This $12000 will become $18000 in value after about 5 years. Similarly, the contribution will keep growing and if you see - a $200 / month can become $25 million in 50 years. The obvious thought is who is going to wait for 50 years. That's your call. The way I look at it is as time progresses, saving a $200 / month will be easier with growth in income. This corpus can be kept aside. if I am saving from the age of 20, at the age of 70, it might make me one of the wealthiest in my region. Warren Buffet did the same. He started reaping these kinds of benefits (as a multi-billionaire) after the age of 60. Look at it this way, you can may be set aside savings like this for your young children who are say 5 years old now - they may see a whole lot of wealth when they are 55.

Taking a different line of thought. There is more boon than Bain in investing early. Benefits can be seen well in the chart and the choice is yours to see where you want to see the results and what are your life goals and plans.

What to do?

  • Calculate: At whichever stage of life you are at, calculate your income, expenditure and accruals. Take stock of what amounts can be invested.

  • Research: Accruals kept in savings at 2-3% effective returns are useless. Research on instruments like shares, mutual funds etc which generate IRR of 12-15% at-least. When you research, judge the risks too. Like for Mutual Funds, my judgement was that there could be a period where returns may be negative. However over a period of time (my research said 5 years), it will generally be positive (if invested in SIPs) and that too generating >12% returns. I had my entire research, risk - reward analysis done and you should do it too. Typically, higher the risk, higher the reward.

  • Allocation plan: Understand your immediate corpus and the accruals per month. The corpus can be invested over a period of time like 6 months to a year so that the invested capital averages out over market volatility. You can allocate say 60% in mutual funds, 10% liquid, 30% in direct equities. Of the 30% in equities, focus more on large caps to start with and pick up some mid or small caps. This research should be done with time in hand - not only on search engines, but by speaking to people. Find a mentor.

  • Start investing as early as possible. There is no alternative to time spent here. Also, don't touch the investments randomly. (I heard somewhere but don't have the data but it has been seen that the richest people from investing are dead. Their family members have found shares in their personal belongings long after they have gone which have become gold mines of wealth :-))

I'll conclude with this thought - money definitely doesn't grow on trees as our parents would tell us when we were kids. But, as young adults, we can be sure that money does grow, albeit with investing.

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