Investing in Your 20s: A Comprehensive Guide

20s is a very exciting age group. It is also the age group when you start earning money but there is only one problem.

The majority of young folks that start earning money have no clue about where to invest their money. That's where the young folks end up making many financial mistakes.

Honestly speaking, twenties is the time that would decide the fate of the rest of your life. A wise financial planning would help you live a financially comfortable life,

whereas a wrong financial decision could end up destroying your financial life. So make sure you take the right financial decision the moment you start earning.

Your uncle would suggest a life insurance policy. Life insurance is almost like a ritual in India. Unfortunately, the majority of them have no clue about the return of the insurance policy. As a result, they fall into this insurance trap for a very long time.

Now there is a set of folks who are so charged up in their 20s that they want to double their wealth in no time. it is the age when there is a high adrenaline rush. They end up investing in day trading futures adoption and penny stocks. Eventually, they end up losing their hard-earned money.

On the other side, there are a set of young folks who do not have any idea about investment and end up keeping money in a saving account or FD.

They don't understand the difference between real versus nominal return and the impact of the inflation rate.

To sum up, the majority of folks in their 20s can be divided into two groups.

On one side, you have a set of people who are highly aggressive investors and end up losing their hard-earned money with penny stock or day trading.

On the other side, you have highly conservative investors who end up shrinking their money in a saving account, FD, and insurance.

Both the approaches are wrong. The ideal way is to make a balanced investment portfolio. How to do that, I will tell you in this article.

In this article, I prepared a list of financial advice and investment options for many younger self in their 20s.

The Rat Race

I still remember when I was in 10th class, everyone said just get good grades in 10th board and your life would be set. I really got pumped and worked hard, got decent marks and then thought my life would be set.

Later, I realized that my journey of struggle has just started. Then everyone said just get good grades in 12th board and your life would be set. I did that. Still, life was not set.

Then everyone said just get into a good college and your life would be set. I got into a decent college.

Eventually, I realized that I have become a part of this rat race where everyone is running behind money.

And that's when I came across this idea to achieve financial freedom at an early age.

I quickly realized that my life would never be set until I achieved financial freedom. The entire idea was to reach a financial state where I don't have to work for money anymore so that I could do what I really love doing.

The Harsh Reality

Everyone wants a financially comfortable life. Everyone wants a nice car and a nice house.

Everyone wants to go for an exotic vacation. Everyone wants to buy those branded stuff.

But in the pursuit to achieve financial goals somewhere, we end up compromising with our life.

We end up compromising with our relationship. We end up compromising with our health.

Yet, it takes ages to achieve all financial goals. If I ask you how many of you want to work till the age of 60, I am sure nobody would want that.

In fact, looking at the current state of stress and competition with an unhealthy lifestyle, it is almost impossible to work till the age of 60

Hence, the idea is to achieve financial freedom at an early age, as early as in the 40s.

Diversification is Key

Now let's discuss how to make a balanced portfolio to achieve the financial goals.

The most important part of financial planning is diversification. You don't want to keep all your eggs in a single basket.

Think this way, if you invest all your money in a particular stock and due to any reason the company fails, then you will lose all your money.

Or if you keep all your money in a bank and if the bank fails, then you will lose the money.

Although bank failure has a very low probability, it is not impossible. Hence, you should make a fine balance with your investment.

In your 20s, you would have negligible or very low liability, hence you can take relatively higher risk.

That's where you can invest a majority of money in equity instruments. As a thumb rule, you can subtract your age from 100 and invest the remaining money in equity.

For example, if you are 25 years old, then you can invest 75 percent of the money in equities.

Now within equity, you can break your investment in equity-based mutual funds and stocks.

So out of rupees 100, I would suggest investing 75 in equity and within that 50 can be invested in equity-based mutual funds and the remaining 25 can be invested in stocks.

Tax Planning

First of all, the moment you start earning money, you should plan your taxes. If your taxable income is above 5 lakh, what are the options to save taxes? Well, there are multiple options, but the best option is to save tax under ATC with ELSS mutual funds.

Under ATC, you can reduce your tax liability up to 1.5 lakh. For example, if your income is 6.5 lakh, then you can invest 1.5 lakh under ATC and reduce your taxable income to 5 lakh.

Please note that there is no tax on income below 5 lakh, so you will end up paying zero tax on income up to 6.5 lakh.

There are a few other options to save tax under ATC, but I prefer to save tax with ELSS mutual funds that are equity-linked saving schemes.

The best part with ELSS mutual funds is high return in the long term.

Investing in Mutual Funds

Now with an equity mutual fund, make sure that you keep a fine balance between large-cap, mid-cap, and small-cap categories.

You should have an exposure in index funds that replicate Nifty and Nifty Fifty.

So out of 50 percent, you can invest 15 to 20 percent in an ELSS fund, 15 to 20 percent in an index funds .

The remaining 20 percent can be invested in active mutual funds. Within that, the better option would be to invest in Flexi Cap mutual funds that automatically balance your investment across large, mid, and small cap.

Investing in Stocks

Now the remaining 25 percent from equity can be invested directly in stocks. This is a tricky part, mainly because when you are new to the stock market, you do not know how to pick quality stocks.

The majority of people end up investing based on tips. Unfortunately, the majority of tips do not cover quality stocks.

So if you are new to the stock market and do not have much idea, then I would strongly suggest investing in companies with strong management, strong competitive advantage, a proven track record, bright future growth prospects, and solid financials.

For example, you can pick two companies from each sector like HDFC Bank and Kotak Bank from the banking sector, Infosys and TCS from the IT sector, Cipla and Divis Labs from the pharma sector, Bajaj Auto and Eicher Motors from the auto sector, HUL and Nestle from the FMCG sector.

You can also pick quality stocks like Asian Paints, Pidilite, Titan, HCL, IRCTC, ITC, Bajaj Finance, HDFC Limited, Reliance, etc.

As you gain more and more experience in the stock market, you can consider investing in mid-cap and small-cap stocks.

But first, start with top-notch companies with very low downward risk. The reason is that many young folks end up investing in penny stocks and get stuck in their portfolio.

Remember, it is better to be safe than sorry. Even if you fetch a 12-15 percent return from your portfolio, it is pretty decent.

Safe Assets

Now the remaining 25 percent of the total investment should be invested in safe assets. It can be debt mutual funds, government bonds, and gold.

So within 25 percent, you can invest 5 percent in gold. Please note that you should not invest in physical gold in the form of jewelry. It is a very bad investment.

Instead, you should consider gold ETF . Then you can invest 20 percent in debt mutual funds and government bonds.

So if you want a better tax-efficient return, then you can consider debt mutual funds. So out of 20 percent, you can invest 10 percent in corporate bonds and 10 percent in government bonds. For government bonds, you can explore Bharat Bond ETF.

Emergency Fund

Finally, you should maintain an emergency fund of 6 to 12 months of expenses to take care of any emergency.

So let's say if your monthly expense is 20,000 then you should maintain an emergency fund of at least 1.2 to 2.4 lakh.

This would ensure that in case of any unexpected event like a job loss or medical emergency, you do not have to depend upon anyone.

Insurance

For people in their 20s, I would strongly suggest not to consider insurance policies for investment. The sole purpose of insurance should be to cover the risk, not investment.

In fact, all life insurance policies except term life insurance are useless. You should consider a life insurance policy only when you have any financial liability.

If you have any financial liability, then term life insurance is the best option to cover the risk. Make sure that you take a term insurance plan of at least ten times your annual income.

Let's say if your annual income is 10 lakh, then you should have a term insurance of 1 crore.

Next, you should consider a health insurance plan of at least 5 lakh to take care of any medical emergency.

Investment Apps

Alright, so that's all about financial advice and investment options for folks in their 20s. Now the question is which apps to use for investment. So to invest in mutual funds, you can use apps like Groww and Zerodha Coin.

To invest in stocks, you can use apps like Zerodha Kite and Upstox. I personally use Zerodha Kite for stock investment and Coin by Zerodha for mutual funds.

Alright, that's all from my side. I hope this was helpful. If you have any questions, let me know in the comments. Till then, take care.

Feel free to ask any questions in the comments section. If you find this article informative, do like and share it with your network. Let's build a strong financial future together! ??

"Investing in your 20s is not about making quick gains but about building a foundation for a financially secure future. A balanced approach today will pay dividends tomorrow."

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