Five tips to follow before you invest in your twenties

If you are in your early or mid-20s, this article is meant for you.

· 3 min read
Five tips to follow before you invest in your twenties
header image credits: CompareHero

As a famous Jewish proverb goes, "the best time to plant a tree was 20 years ago, the second-best time is now". If you are in your early or mid-20s and you're reading this article, it is not your fault that you weren't able to start your investing journey in your nappies (unfortunately).

However, adults will unanimously agree that the best time to start investing in the future for pure financial freedom was in their 20s, and many of them regretted partying or splashing away their early income instead of investing it the right way. So this is a guide put together by a fellow zoomer on what we can do in our next 45 years to see ourselves financially free and ensure a wealthy retirement.

1) Ensure you have an insurance plan covered

If you don't believe insurance is necessary for today's day and age, I highly recommend you check this link out regarding insurance.

Note that at our age, the only insurance we'll need will be life insurance and health insurance. Talking about life insurance, it's most advisable to go for a term plan where at our age we can even get insurances worth as much as ₹1 crore for premiums worth just ₹6,000-₹8,000!

2) Ensure to live below your means in your 20s

"I have only one life dude, if I don't live my life in my 20s, then when will I?" is the worst attitude to have if you plan to have a peaceful retirement, or even be able to retire or get wealthy early. By spending your entire salary on parties and travel, and not investing any of that amount, you are doing 'future you' a massive disservice.

Keep it a rule to invest AT LEAST 20% of your monthly salary every month without fail. Aim to spend 50% of your salary on the things you need to survive, maybe an additional 30% on your luxury expenditure if you want to, but at least 20% of your salary must be put into investments every month. Of course, you can always invest a higher portion, that is your call.

Also, you'll still be young and energetic in your late-20s and 30s, 'dude'. We need to learn to enjoy our youth with financial responsibility to maximize our experiences as well as our investments.

3) Truly understand the value of compounding

Assume you would like to earn today's value of ₹1 crore by the time you are 65 years ago (which is the average retirement age). Would you like to take a guess how much you would have to invest per month to get such a return? The answer may surprise you - you would have to invest a total of ₹2,000 per month only! Of course, this is not even assuming you increase that amount every once in few months.

Einstein rightly said that compounding is the eighth wonder of the world, and the sooner you can drill that into your head, the richer you can retire. Arguably, compound interest is the most useful math concept most people would learn during their 12 years in school.

image credits: Pro Bono Australia

4) Ideally have no pending loans whatsoever

We do not want to have expenditure for loan EMIs taking over the money we have kept aside for long-term investing. Try not to take loans at all if possible; personal loans and car loans in your 20s should be an absolute no-no, and try to use your credit card as judiciously as possible. There are advantages to having loans and using credit cards, a topic which deserves an entire article on its own.

5) Where to invest in your 20s

Finally coming to the big question, this could make a massive difference in the growth of your wealth over your lifetime. The most important rules in your investment portfolio in your 20s should include:

  • diversification
  • risk-taking
  • aiming for top returns
  • keeping it simple
  • being up to date

With all this considered, a long-term portfolio according to me would consist of 30% small-medium cap well researched and promising companies, 40% large-cap companies in an industry you are well versed with (or) index funds or ETFs of the Nifty, 20% in sovereign gold bonds (note: not gold itself) and 10% in a cryptocurrency of your choice

If you can ensure regular investment in this portfolio for your lifetime, there should be nothing stopping you from reaching your financial goals over a long-term period

Related Articles

Crypto Staking | A beginners guide
· 3 min read
Evaluating Crypto Liquidity Pools
· 2 min read
Top 10 most promising crypto projects
· 5 min read
What are flexicap funds?
· 2 min read