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Investment Advice Every Millennial Should Keep in Mind - Jar App

Team Jar
October 27, 2022
Investment Advice Every Millennial Should Keep in Mind - Jar App

Beginning your investment journey? Yes, it seems daunting. But it's really not so hard. Here are some important points every millennial should consider before investing.

Millennials, born between 1981 and 1996, have had it hard. They witnessed the worst inflation since the great recession, subsequent wars, and even a major global pandemic.

All these resulted in lost jobs, pay cuts, and significant loss in business and investment. So much so that many companies had to declare bankruptcy to survive.

Therefore, to survive and thrive in this rapidly changing economic landscape, everyone must be smart and strategic about investment and savings. But, it could be a hard pill to swallow for many millennials.

If you are one of this lot and reading this article right now, you might have experienced how hard it has become to survive during swiftly increasing prices.

Or it could be because your parents or elders have been nagging you about it or offering you investing advice that you never considered listening until now. 

Whatever your reason or motivation is, you know the money you start investing in your 20s can have ample time to grow.

Investment is just like sowing and growing a plant – the more you give it time and nourishment, it will grow and become fruitful.

But before you take any investment decision, you must understand why it is essential to invest diligently.

Invest For The Right Reason, Not For Greed To Earn Profits

You might have heard people or your elders say: if you want to earn something, you must work for it. Investing is also the same.

Although money is a non-living material, you can make it work so that it grows. By smartly investing, your money can outpace inflation and increase in value.

All you need is the right tool.

Check yourself if you are investing for the right reasons:

  • You want to create wealth for your and your family's future
  • You want a cushy retired life
  • You want to beat inflation
  • You want the tax benefit
  • You want to save for your kids' education
  • You want to take a long foreign trip
  • You are saving for your wedding

3 Rules of Investing by Warren Buffet

If your reason to begin your investment journey is among them, take the first step toward attaining your financial freedom; learn Warren Buffet's three golden rules of investing.

1. Invest in what you understand

Financial investment is not something you should be playful with, even though you have plenty of money. So, if you have decided investing money in something, you should have complete faith in it – not because someone suggested it to you.

Before you put your hard-earned money in, do thorough research. Take someone's help to verify your understanding. Invest only when you are 200% sure about it.

For instance, the stock market can be very tricky for a beginner. So, if you do not understand it very well, don't jump into the deep end on the first try.

2. Do not be obsessed with watching your returns

Yes, investing and trading can be addictive. You can become obsessed with monitoring your money too closely. But, in reality, it won't help. Yes, keep an eye but not too closely. Let it perform and grow on its own. 

But in hindsight, you also should not completely forget about your investment. Monitor all your investment once a month or once a fortnight, and keep a close eye on financial news. If the need arises, you should also know when to withdraw your investment.

3. Buy quality merchandise when marked down

Warren Buffet once said, "whether we are talking about socks or stocks, I like buying quality merchandise when it is marked down."

What does it mean? It means: if you want to purchase stocks, do it if and when it is undervalued. It will give you a much better discount. But would you identify whether a stock is undervalued or overvalued?

Follow these simple signs:

  • Low P/E ratio: If a company has a low P/E ratio, it could be because it is undervalued.

  • Positive earning: If a company's past 5 years' earnings have been consistently positive and never had any down year, then maybe the company is undervalued.

  • High earning yield: If the company's earnings per stock are more than the price per stock, then the company is undoubtedly undervalued. Your aim should be to find a company with a high earning yield.

  • Proportionate dividend yield: If a company is giving a dividend of at least 1% of its share price, you can rest assured about its ability to give a good return on investment.

Here are the Top 5 Financial Advice For Millennials

1. Set your financial aim

Before you begin your investment journey, figure out your financial aim. As we mentioned before, your goal will help you decide on what kind of investment you should make.

For instance, long-term investment is what you need if you want to save for your retirement or your kids' education and you are in your 20s or early 30s.

It will give you enough time to grow. You can consider investing in mutual funds or stocks and let them work on their own until you need them.

However, if you want to save for a foreign trip, you can go for short-term investments like up to 3 years long mutual funds, bonds, or bank fixed deposits.

2. Invest based on your risk capacity

Every investment has some risk associated with it. It is especially evident from the last few years' performances due to the global pandemic. If you are thinking about how to invest money, check your ability to take risks.

If you are fearless and can afford to make risky investments to gain high profits, you can look at investing in stocks.

But, if you are not too willing to take a risk with your hard-earned money, you can check out blue-chip mutual funds, bank FDs, bonds, post office savings schemes, etc.

3. Diversify your assets to minimise risk

Diversification of investment essentially means allocating your funds to more than one asset class. This tactic protects you from adverse market conditions you are exposed to.

Ideally, you should allocate 10-25% of your investable amount in each asset class. By doing this, you can limit the volatility in your overall portfolio and reap the benefits of the performance of other asset classes.

4. Research on Every Asset Class Before Investing

Like Warren Buffett said, understand every asset class, its features, risks, and benefits well before investing.

You must be 100% confident in the asset's ability to build wealth. If you have even 1% doubt, it's not worth the risk.

5. Consider Tax Benefits

As a millennial, if your salary falls under a high-income tax bracket, then you should consider an investment that offers tax benefits.

Many mutual funds and bank FDs of over five years provide tax deductions.

Furthermore, you can consider investing in public provident fund, life insurance, and medical insurance as investments if you want tax benefits.

Final Thoughts

Investment and personal finance are just that - very personal. We understand this is an additional responsibility, but ultimately it is for your and your family's better future and better life.

Financial experts say that the worst thing a millennial can do is not invest early in their life. If you invest early, you have a better chance of growing your money.

Hope these investment bits of advice were helpful. They are like lighthouses, guiding you to navigate this complex investment world.