If you are in your 20s, it is the formative time for investing and could form the basis of your life long investing. Here are some tips:
Invest Bravely: this is the time for you to start your own start-up or invest with friends in their start-up. You could be investing your time, energy, contacts, to grow this. This investment could be path breaking - make sure that you know when to get out if things do not do well. Have a clear Exit strategy.
Get a good advisor - take your time in selecting a person who is about 15 years older than you - he/she will bring maturity and stability to your portfolio. If he/she is your parent’s advisor, well and good, but it is important to be hit off with him or her. If the wavelength matches, that person will be a good choice.
At this time of your Investment journey, the ‘rate of return’ on your money is not as important. What is very important is the ‘rate of money saved and invested’. If you are saving say 50% of your take home salary, you may be doing a great job. Make sure that this figure does not drop below 30% ever. Once in a while in a particular month, it is all right, but make sure that you make it up the next month.Learn to spend much less than what you earn. This sounds very simple, but you will be surprised by the number of people who break this simple rule.
Get a credit card, but, make sure that you do not use the credit part. This means whatever you spend on a credit card, the FULL AMOUNT should be paid off about 3-4 days before the due date. This will help you have (and keep) a good Credit Score. Anything about 750 is good, obviously, higher the better. Start your investing - your advisor should be able to help you with your Goal setting, mutual fund selection, tax benefits, liquidity, - and start building your portfolio.
Remember, you need not know how much you will need for Retirement, however, you need to start investing for the ‘big amount’ that you will require. If you are a person who still needs a number, aim for at least $2 million. 40 years from now (when you retire) this will not look as big as it looks today, relax.
Make very strict rules for borrowing - buy a second hand vehicle to start with, remember that a car looks good, but has high maintenance, and takes a lot in terms of fines, bribes, etc. In most cases a 2-wheeler can do a good job. However, a car feels safer. Ultimately, take a decision on the basis of affordability, family pressures, etc. when you take this decision. Remember that all the EMI that you pay should not exceed 30%. Keep this discipline always.
This is just a start, there will be more to come!
PV subramanyam
writes at www.subramoney.com and has authored the best seller ‘Retire Rich - Invest C 40 a day’