How to Invest in Your 20s. Complete Step By Step.

Today let's learn how to invest in your 20s. And mind you, no same old 50-30-20 Rule, no impractical talk. Only those things that you can actually implement and with which you can become wealthy.

How to Invest in Your 20s

Step 1: Focus on Earning More and Skill Building

Right now you are young, probably it's your first job, it's been 2-4 years. So focus on earning more. It's a very simple thing, you will invest only what you save, and if you earn more, you will save more, right? So focus on earning more for the first few years of your life. What often happens is, due to lack of sufficient active income, our earnings are low, and how do we try to substitute it? We get our salary and we start trading or gambling. With what hope? That my expenses are not covered by my salary, so let me earn some extra money from somewhere else - from the market, from crypto, from somewhere else. We incur losses. We have to take personal loans, digital loans, and we keep making things worse. The first rule when you are already in a hole, don't make the hole deeper. Focus on skill enhancement. If you are getting a low salary and someone of a similar age, in a similar profile around you is getting more, how can you reach that level? Focus on that. When you start earning, it feels very good that now I can live freely. I can fulfill my wishes. But also make sure that those who made you capable of this, who brought you to this point - your parents, grandparents, if they have some needs, keep fulfilling them too. The satisfaction and happiness you will get from that is unmatched.

Step 2: Time and Compounding

This is your biggest advantage: Time. See, how did Warren Buffett reach the list of some of the richest people in the world? He started becoming very rich in his mid-60s. The simple reason was - he started at 11, now he is 97 and he is still investing. So he gave his money 86 years to stay invested and keep compounding. So his biggest advantage is that he started early. If you are starting at 20, you are also starting early. Now you have to focus on keeping your health in such a way that you live till 90 and you will become, if not the richest in the world, then at least in the top 1% if you continue investing in appreciating assets. It is that simple. Time is in your hands. So you have to start now. Income can be low, it can be inconsistent, so we will do less, right? What happens with these 50-30-20 rules is that. Right now I am not able to save even 20%, so I won't invest now. Do 5%, 10%, whatever you can. At least let's start, right? Because what will happen later is that your responsibilities will also increase. So if you save some money now and invest it and it compounds and becomes a large amount after 5 years, it will help you. At that time you have to fulfill your goals, so let's start with an amount you are comfortable with. Everyone's situation is different, we recognize that.

Also Read, How to Increase Your Financial IQ. Improve Financial iq.

Step 3: Stop Worrying About Short-Term Market Cycles

This is connected to it, that you don't need to worry. We worry a lot. The market is high right now. Gold and silver have gone up. Property prices have gone up. The market has not gone anywhere for two years. Is the country's economy bad? All sorts of questions come to our mind. See, you have to understand that you are in your 20s. So you can digest any kind of volatility. What will happen? For the next 30-40 years you are going to earn. You have just started your career, so your income is low. It will gradually increase. So even if you invest some money now and growth doesn't come, you will always have money in the next 30 years to average it out, to invest more. Someone should be afraid of market situations when he is investing his retirement savings, that if my entry point is not right and the market goes bad from here, the value of my lifelong earnings will decrease. Your earning life is just starting, right? Even if the market doesn't go anywhere for 2 years, you will get an increment. You will be able to invest more. Rather, right now you earn less. Even if some losses occur, they will be on a small amount. You will learn a small amount. So you have no reason to be afraid at all.

Step 4: Risk and Volatility

Differentiate between risk and volatility. For people or for the market, what is risk may not be a risk for you at all. For you, it may just be volatility. Let me explain it to you in a simple way. Suppose you bought a share for 5 years. You think it will happen 4 times in 5 years. You bought it for Rs. 100. You think it will become Rs. 400. Now in year 2 it becomes Rs. 50. In year 3 it becomes Rs. 200. In year 4 it becomes Rs. 150. In year 5 it again becomes Rs. 400 or maybe not, it becomes Rs. 350. And in the sixth year it again becomes Rs. 400. What difference does it make to you? To whom do you have to answer? You don't have to answer anyone, right? So whether your money is growing in a completely linear way till your goal or it is growing with a lot of ups and downs, what difference does it make to you? It makes a difference to the market. They have to answer to investors quarterly. For the market, volatility itself is risk. For you, volatility is not risk. So what difference does it make to you? Don't confuse volatility with risk.

Also Read, How Much Money Should You Have At The Age Of 25, 30, 35 and 40 In India?

Step 5: Age Appropriate portfolio Allocation

And when you understand this difference, you will move towards step six, where you will learn to do age-appropriate and risk-adjusted investing. Now if you are young, if you can afford to take risks, if there is another earning member in your family, then you can invest more in small caps. You can invest directly in stocks. This does not mean that you should trade. It also does not mean that you should go and buy cryptos. We have to do investing only. We should not go towards speculation. So while investing, what risk-appropriate strategy can you develop? For example, if you are young, you don't have dependents, you have free cash flow, you don't have debt, so you should invest in small-cap mutual funds. You can also invest directly in stocks. And apart from that, you can also buy gold and silver. So for a debt-free person who is in his 20s, who does not have dependents, according to me this is a broad template. I don't understand your situation, so I cannot tell you the exact proportion, but as a reference point, you can put 1/3 in small-cap funds, 1/3 you can put in gold and silver funds, and 1/3 you can invest directly in stocks.