Turning an early investor into a pro — planning savings for a 30-year-old

While risk-taking becomes less pronounced as you enter the thirties, your need for tax saving instruments start growing. Investing patterns need to get fine-tuned at this stage.

Written by Sandip Sen | New Delhi | Published:September 14, 2017 2:34 pm
Invest right, planning savings, Tax free savings, early investor, stock market investment, laws of investment, Business news, Indian Express When you’re investing, don’t worry if you lose money, keep taking risks and remember that age is by your side. (Representational Image)

If you start as an early investor you have the scope to learn from your mistakes and reach the zenith in five to 10 years. No matter your educational background, mistakes are bound to be made, and money will be lost occasionally. This happens, especially in the initial years, if you take risks in your investments. But don’t worry if you lose money, keep taking risks and remember that age is by your side.

Never borrow to invest in in the market

Whatever may be the prospects, it is unwise to borrow and invest as there is always an element of risk. While you may believe that these are the years to get rich quick, take maximum risks and gamble your money, we know youngsters who have regretted it later. Despite the rush of adrenalin, the first golden law of investment is to never put yourself in debt.

The reason is largely because investment decisions are based not only on fundamental or technical analysis but also on market grapevine. Operating results is just one part of the story. Market news is equally important and affect stock prices daily. This is where we get mislead because the prime source of the investors information is usually the stock brokers who give market news. These brokers who usually bump off bad purchases on new and unsuspecting clients. Similar is the case with promoters who wish to offload excess holdings on the markets, by floating false and misleading news.

What is the difference between a 20-year-old and a 30-year-old investing?

Though the propensity to invest in stocks to maximize profits is high till the age of thirty, the type of equity investment differs as investors mature. The early investor in the age group of 15-22 can have a portfolio crammed with stocks from newbie promoters that promise high growth. IPO’s and stocks that have been recently listed are places to chose from if you are an early investor in the 15-22 age group.

This is largely because you do not have high surpluses to invest during the early years. By the time you have entered into the 23-30 age group your financial muscle improves and you start investing in pricey blue-chip companies. Blue chip companies are expensive to hold but they tend to be the less risky amongst stocks. Besides they are highly profitable.

A twenty-year record of a blue-chip company like HUL, Asian Paints or Reliance will show you that their returns have been consistent. They have been fetching high profits for the investors for decades. The share prices fall marginally only when these companies issue bonus or rights issues but they soon recover to previous levels. Still they are usually such pricey stocks that it is very difficult to buy them. These stocks are difficult to buy in your teens or early twenties when your income levels are low.

It is something that you must aim to acquire as an investor even before you have a nearly six figure salary. So, while you maintain your investment in the same ratio of 60 per cent to 70 per cent in stocks as you reach your thirties, you reduce your risk by investing in blue chip equity.

Tax free saving instruments are important as your income rises

Similarly, your bond investment starts differing as you increasingly look for tax free bonds to reduce your tax liability. Tax free bonds are usually issued by Government bolides like Rural Electrification Corporation or PSU’s like IRFC, NTPC, NHAI, HUDCO or any other. While these bonds are long term bonds they are extremely secure and provide stable returns. They have institutional ratings such as AAA or AA and even the interest income on these bonds is exempt from tax

The tenure of these bonds are usually 10 to 20 years, but an exit route is available if you do not want to hold it, as they are listed on stock exchanges. If you are being taxed in the 30% bracket then you would be wise to invest in these bonds to reduce your tax liability significantly. If your income levels are high you must also look for PPF or Public Provident Fund which is different from EPF. PPF is voluntary and different from EPF that is mandatory. You can invest upto Rs. 150,000 in PPF under the current day tax laws and claim for tax exemption Even the interest on PPF is exempt from income tax unlike the interest on EPF which would attract tax on withdrawal as per a April 2016 notification of the government.

For all the latest Business News, download Indian Express App

    Live Cricket Scores & Results