Starting of Investment Your First Step

The fact that you are reading this post shows that you are interested in financially securing your future. Learning and reading are the gateways to new horizons. Since you are near 18, I’ll try to keep it as simple as possible for you!

Assume, you need to make a football team (Portfolio). Would you buy 11 strikers (Smallcap stocks) and no defenders (Debt funds, PF , etc)? In a rare case you could win that game but a well organised team (Inflation, market risk) will definitely beat you! For making a well balanced team, we will need:

• Goal Keeper (Insurance) – Defending our family
• Defenders (Fixed Income) – Protecting during bad times
• Midfielders (SIP in Mutual Funds) – Creating opportunities
• Equities (Direct stocks) – Generating superior returns

You need a term cover that is around 15x to 20x your annual income. Suppose your annual income is Rs 12 Lakhs a year. Then you need a life cover of atleast Rs 1.8 Crores to Rs 2.4 Crores. In case any mishap, your family will have a lumpsum of Rs 2 Crores (Average) which they can put in an FD and get Rs 1 Lakh a month to keep their standard of living intact!

This varies from individual to individual. A person earning a salary and business income but also having good rental income, other investments might need a lower multiple of term cover. The benefit of going for a term plan early is that premium is low and fixed for the entire period of the cover.

Don’t mix insurance and investments. LIC and all other plans your agent sold you will have meager cover which will be inadequate for your family’s protection. Don’t let your policy lapse but rather complete the premiums and move it to a better investment avenue.

At 18, you are not going to get a term cover. But once you start working, buy a term cover as soon as possible!

Now you need to protect yourself from temporary turbulence that come up in life. Medical needs of family, liquidity crunch due to professional reasons, repairs to car and home, etc. Unless your astrologer can pin-point predict the date of these emergencies, you will need to be ready 24×7 for these!

6 months household expenses in a liquid fund, medical and health insurance, car insurance etc are very much needed. The quantum again depends from person to person.

You are 18 and I assume you aren’t responsible for meeting household expenses. So, you can leave it for when you start earning and providing for your family.

We all like the thrill of trading/investing in equities. That moment we hit a classic trade or investment makes us feel like a champion! A master of this universe and what not! But lets accept it. We are so busy in our career that we don’t have the time and resources to make informed investment decisions in equities.

Do an SIP in good mutual funds – Equities, balanced or debt will depend on your risk profile and other factors. SIPs in mutual funds ensure that we stay disciplined because when it comes to equity portfolios, investors are unable to invest with a vision and end up losing whatever profits they make due to greed and fear.

Our portfolios need that alpha which direct investing in equities can generate. With proper research and guidance, we can definitely generate 22% p.a and higher in the long run. If invested with a vision, not only will you make profits from the stock market but more importantly you will also re-deploy those profits in more profitable avenues to compound your portfolio to double it every 3 to 3.5 years. If you just do a random walk in the park with your equity portfolio, then you will not see any returns on it. Losses are pretty common in equities as you know.

Note: You need to keep a track of all of your investments and ensure that they are on track. If any shuffling is needed, your advisor must guide you accordingly. Most people just don’t keep a track of their investments and in the end its just random investing.