These money moves can make your investments sweat more for you.
Planning for investments is a boring subject for many. However, a few millennials are taking keen interest in their money matters. Booming internet has enabled them with information but sometimes it creates a problem of plenty. Too much information makes decision making tougher. Here are five simple money moves that will help you build your investments and remain ahead of others.
Investing at the beginning and not at the end of the year
This may sound too basic. But it makes a big change. Let’s get the numbers right. Nirav invests Rs 1 lakh at the beginning of the year and earns 8% rate of interest. Over next 20 years he will accumulate Rs 49.42 lakh. Rahul does the same thing, but he invests at the end of the year. He accumulates Rs 45.76 lakh. Nirav earns Rs 3.66 lakh more just by investing at the beginning of the year.
Start investing at the beginning of the year for your section 80C investments in fixed income options, you too will benefit.
Keep investing – could be the mantra if you want a complete makeover of your money matters. By now you must have read it that if you invest Rs 1000 at the beginning of the month for 20 years, at 1% per month return you accumulate Rs 9.99 lakh. Invest more and you take home more money. The trick is being a regular investor.
This can help you overcome the volatility in stock markets. Let’s look at the numbers. Over last 10 years point to point compound annual return given by CNX Nifty is 7.45%. Yes you read it right. You would have made similar returns in a PPF account without taking all the risk. However, if you do a monthly SIP in an index fund tracking Nifty, you would have been sitting on a return of 12.18% after expenses. The numbers for actively managed funds would be even better.
If you are salaried it makes a lot of sense to invest as you earn your salary every month.
Starting your investments early
Lack of savings make many millennials postpone their investment plans. Some wait for the right time, some want to start with meaningful amounts. No matter how small saving are, you still have a chance to make it big.
Let’s consider investing two friends Abhay and Ashish invest at 1% rate of return per month. Abhay starts small Rs 1000 per month and invests for 60 months. Then he raises it to Rs 5000 per month and invests for 20 more years. At the end of 25 years, Abhay will have Rs 58.94 lakh. Ashish however wants to start with minimum Rs 5000. He starts after five years. Over 20 years he is left with Rs 49.95 lakh.
A small start with Rs 1000 per month for five years, puts Abhay ahead by Rs 8.98 lakh.
Benjamin Graham has put it straight – “The early morning has gold in its mouth.”
Diversifying across asset classes
Andrew Carnegie said, “The way to become rich is to put all your eggs in one basket and then watch that basket.”
But what if you are busy in your job or business? What if you are enjoying your life with family and friends? Most of us do not understand the investments as much as the experts do. To overcome this dilemma, it is better to diversify.
Keep aside the short periods of extreme bullish or bearish sentiments, not all asset classes rise together nor do they fall together. Define an asset allocation for yourself; keep some money in stocks, bonds and gold. Keep rebalancing your asset allocation and you are home.
Buying right insurance covers
Thanks to awareness campaigns, many millennials end up buying a term life insurance cover. Also many employers offer group health insurance covers to them. But the trouble is most of the times these covers are inadequate. An inadequate cover leaves you almost unprepared for the emergency. Buy adequate amount of term life insurance cover, typically 15 times your annual income. Review it at least once in five years, especially after you take large loans such as home loan. Do consider buying a family floater health insurance along with separate covers for parents as the employer provided insurance covers are generally inadequate.This will ensure that your investments will not be used to mitigate hospitalisation expenses and other such exigencies. Your investments keep working for the goals you have defined.