I know you are afraid of finance
because frankly, we can never have enough money!
Plus, numbers are boring and complicated... which is why I am here!
You work so hard to make your family financially secure
and I think you deserve to have enough money to fulfil your dreams.
Be it World Tour, Higher Education or a Retirement Home near a beach!
And all of this can happen by choosing the right investment
according to your age.
I hope you are as excited about this video as I am
because in today's video we are going to see..
1) 3 factors to consider before you chose an investment option.
2) Top 4 Asset Classes or Investment Categories.
3) How to choose the best investment option according to your age.
And towards the end, I'll give you a Bonus Tip
so that when you get old, you don't become as miserable
as that uncle in your society who always complains.
But before we begin this investment class,
if you like my work make sure you hit that 'like' button
because it motivates me to make more videos.
Let's begin.
Before you pick an investment option according to your age,
here are 3 things that you must keep in mind.
1. Inflation
For example, let's assume you keep Rs.100/- in your locker today,
then tomorrow that Rs.100/- in your locker will become Rs. 95/- because of inflation.
Inflation reduces the 'purchasing power' of money
because prices of flour, pulses, clothes, real-estate
keep on increasing. But your cash does not increase.
In Jan 2020, the inflation rate in India was 7.59%.
So dreams come later, if you first want to keep receiving food and clothing
then you have to beat this inflation.
2. Retirement Planning
One day you will get old and that day you will need more money for medicines and operations,
cost of living will increase
and to make things worse, you won't have any monthly income.
Unfortunately, people start retirement planning after getting retired.
And for some, their retirement planning is their children.
That's like the worst plan ever.
After working for 40+ years, don't you deserve to be free? Financially independent?
So factor #2 to always keep in mind is your retirement fund.
3. Dreams/Goals
This is where you and I are different
and you and your brother and sister are different
because all of us have different goals in life.
Some want higher education, some want to travel,
others want to start a business.
And all of us want our 'Apna-ghar'. So your goals will decide
what is the best investment option for you.
Now, keeping these 3 factors in mind let's see what are the
top 4 investment categories in the market.
So, most of the investment options can be classified into these top 4 asset classes.
1. Cash
Cash is money in your hands or in your Savings Account.
Low risk, very less returns.
In SBI, savings account returns are just 3.25% which is not enough
to beat inflation, forget retirement or dreams.
But it is good to have a certain percentage of your savings as cash
because it is readily available.
2. Debt Investments
We have Bonds, Debentures but the most common
debt investments in India are through FDs or RDs.
SBI's FD returns are between 5% to 7%.
But they come with constraints like lock-in period, missed instalment penalties.
While it is good to have a certain percentage in FD for stability,
it's not wise to invest all of your money in this category.
3. Real-Estate
Fine. I took a loan and bought a house because I am emotionally
attached to the concept of 'Apna-ghar'.
But beyond one house where you live,
I don't prefer real-estate as an investment because of 3 reasons.
Returns are location-specific, to maintain it you have to pay taxes/renovations
and liquidity is low because taking out your money takes a year or more.
So unless you are living there, you must decide whether it is worth the trouble or not.
And finally, we have equity.
People who want to beat inflation, save for retirement
and grow their wealth invest in equities
either through Mutual Funds or Stock Market.
But as you witnessed in the last few weeks, markets are volatile.
So after investing, it is advised to wait for atleast 3-6 years to see their potential
because equities are long-term investments.
In my opinion, 2 easiest ways of investing in equity are
1. Index Funds
because you pay the least expense ratio to a fund-manager but are still tied
to the growth of the economy.
2. smallcase
What is smallcase?
If you want to invest in stock market directly but think it is too risky to
invest in one company then you can check out smallcase.
They create a basket of stocks based on a certain theme
like 'Rising Rural Demand', 'Smart Cities', 'Electric Mobility' etc..
So instead of risking it all on one company, smallcase allows you
to diversify across multiple sectors and market caps.
I know it sounds interesting. So don't worry, I'll tell you more about it later.
But for now, remember these 4 asset categories
because in the next segment, we are going to see
how you can divide your investments in these 4 categories
depending on your age.
Before I begin, know that there is no one-size fits all.
Please feel free to modify the percentage of division that I am suggesting
depending on your risk-taking capability.
With that understanding, let's start with your 20s.
Assuming that your monthly expenditure is 'E' and your age is 'x', then your split can be like this..
Keep 2E, i.e atleast 2-4 months of your expenditure as Cash or in your Savings Account.
For equity percentage, let me give you a formula.
It is generally advised that you invest 100-x% in equity where 'x' is your age.
Suppose your age is 25. Then you can put 100-25% = 75% of your savings in Equity.
Your equity options are Mutual Funds, investing directly in Stock Market or through smallcase.
But remember, choose each equity investment based on a long-term goal
like higher education, retirement, corpus for buying a house later etc..
After you've invested in 100-x% in equity, invest the rest i.e x% in Debt for stability.
You can chose FDs or even Liquid Funds that can act as your Emergency Fund for a rainy day.
With age, your risk taking capacity decreases
and this formula ensures that as you keep getting older, you start shifting from equity to debt.
Which is why 20s are considered a great age to invest in equity
because even though you have less money, you have the advantage of time.
Coming to your 30s.
As you grow older, your responsibilities increase.
Assuming you will be married and plan to have children,
I am not saying you should but incase you do
then you need to plan for children's education for sure
but also plan to enjoy your breaks with your spouse
by taking holidays or occasional international travels.
Unfortunately, post-marriage couples immediately take
home loans, car loans, personal loans and for a long time
keep servicing these loans. But it's always better to first save
and build a decent corpus which is why the split is..
100-x% for equity.
Even if you've missed investing in your 20s,
30s are still a good time to start a SIP.
Debt is still x%.
But since you are investing more in debt in your 30s,
plan to do short-term investments in Liquid Funds
for vacations or to build a corpus before you take a home loan.
Now 40s is a good time because salaries of both
husband and wife increases. At this time it is important
to keep a check on your expenses and invest the
additional salary by topping up your SIPs from time to time
to meet you goals faster.
So, equity can be between 50 to 60% after doing that 100-x% calculation.
If you've not invested any amount in equity till now
then it is time to get serious and talk to a Financial Advisor immediately.
Retirement savings should be your priority but also plan for
children's education, supporting parents etc..
And stay away from schemes that sound too good to be true
because more often than not, they have high risk associated with them.
Coming to Debt...
Atleast 3 to 7 months of your salary should be saved as Emergency Fund
because more responsibilities you have, more stability you need.
Btw, here's a Pro Tip. In your 30s or 40s..
you have a family to take care of.
So, investing in a life insurance policy at this time is a wise decision.
But at all ages, you must have a health insurance policy
because incase of an emergency or an accident,
a health insurance saves you from loans
and when you don't have loans will you have any money
to put in the rest of the investments.
Coming to 50 and beyond..
I am sure your parents fall into this category.
So you can show them this video, talk to them
and you can help them plan their investments by doing this..
Equity: 20 to 40%
Even if you invest in equity, pick large-cap companies that have less risk
or choose the 'All Weather Investing' smallcase.
I'll show you what it is in a minute.
Now in Debt, atleast have 6 to 12 months of your salary as Emergency Fund at this age.
So, as you just saw.. when you start your career
you have more appetite for taking risks and slowly as you reach retirement..
you will have no monthly income and less risk appetitie.
So it is important that you are prepared for this transition.
As I mentioned earlier, equities help you generate long term wealth
and hence prepare you for retirement and beat inflation.
But it is important that you dont lose money in equity due to greed,
fear or lack of knowledge.
And one thing that can help you with that is smallcase.
This video is bought to you by them because
single stocks can be risky but smallcase
helps you diversify your equity investment across multiple sectors
and market caps.
This is how it works.
You can login to smallcase through one of these stock brokers.
I'll login using my Zerodha credentials and after logging in,
I can explore and chose to buy an entire portfolio of stocks.
As you can see, there are different themes and you can choose the theme that you like the most.
For ex: if you think that electric vehicles will do well in the future
then you can check out the Electric Mobility smallcase.
If you think because of the current condition,
the Pharma Industry will do good then you can check out the Pharma tracker.
Let's assume that I want to invest in the low-risk smallcase called 'All Weather Investing'.
For each smallcase, you can see, how much percentage
is being split among which companies or segments.
Now when you click on 'Buy', you can either buy it as a one-time investment
or apply for a monthly SIP.
Remember, smallcase has professionals who just
create a basket of stocks for you.
Ultimately, you will buy these stocks through your Stock Broker.
So, to buy a smallcase you need to do these 2 things:
Step 1 is to open a DEMAT account with a stock broker.
I am using Zerodha because it doesn't charge any brokerage for equity investment.
So if you also want to open an account with Zerodha then I've got a sweet deal for you.
If you use the link in the description to open your account
then you will receive these 7+ Trading and Investment courses for free.
Step 2 is simple. After getting your Zerodha login details,
you can use the same to login to smallcase using the link below
and buy any smallcase that you like.
Remember, smallcase (through Zerodha) has transaction charges of between Rs. 50/- to Rs. 100/-
which is frankly very less when compared to
the brokerage charges you'll have to pay otherwise.
But always remember, equities investment are subject to market risk.
So, always research about the companies before you invest.
But there is one investment that is zero risk with maximum returns
and that is to 'subscribe' to my channel and hit that 'bell' icon
because I make Career and Finance videos, especially for you.
I think today's video was a little heavy-duty.
But please don't worry if you haven't started any investments!
As a Chinese proverb says (oh the irony!) ...
The best time to plant a tree was 20 years ago
and the second best time is NOW.
It's exactly the same with investments.
So today's Bonus Tip is this... 'Start Learning Now!'
Talk to people, read more, learn more..
Comment below and ask your questions!
It is going to take effort to 'learn' about investments
but I promise, the benefits are going to be worth it.
Now before I leave, a quick reminder..
If you think Zerodha and smallcase are the right options for you
then don't forget to use the first link to open your Zerodha account to get your free courses
and then use the second link to buy a smallcase.
I promise to see you again in the next video, until then..
Keep fighting, The Urban Fight to be Fit!