One of the key questions that a young person who starts earning usually asks is “Where do I invest the money so that it fetches good returns?”. This is a very difficult question to answer in a small article but here are a few thoughts
The first thing to do would be to understand the objective of the investment. One can invest for a specific goal (like an expensive car in Y years or x% return in Z years) or it can be generic one like retirement planning. The reason the objective is important is that it would drive the avenues as well as the duration of the investment. It would also decide the amount of funds to be invested.
Once the objective has been decided (the more specific the objective, the better) comes the difficult part of looking for an option. While looking for options one must understand that every investment as an element of risk associated with it. The risk will vary with the mode, duration and amount invested. Typically stock markets are one of the high risk- high returns options. The advantage of stock markets is that one can invest even in small amounts and as and when funds become available. Also selling the stocks if they are not doing well is fairly easy. One must, of course, keep in mind the transaction charges and the tax implications of these transactions.
Apart from stocks, one can also look at options like mutual funds and there are a plethora of options within these. Forex trading is also becoming popular where people can take advantage of the differences in currency rates and use these to make money.
Gold and silver are fast becoming hot and prices are increasing day-by-day. These can potentially be used as a good long terms investment. Some countries are offering bonds on gold. This is quite good as you can purchase gold and yet not take the risk of storing them.
Investment in the stock market involves understanding the dynamics of the market and the industry and then selecting specific companies. The next step would be understood these companies in details based on their recent performance and the results published. Also the policies from government should be looked at. These factors need an in-depth study before an investment decision is made. Many people tend to get bits and pieces of information from various sources and then take a decision which is based more on gut feel instead of hard facts. While this may not be a bad option if the investments are small, this method is definitely not advised when the investment is large.
Another option where the returns are good is real estate. This mode would require a good amount of funds to be available before buying a house or a flat. Once done, the investor can look at either selling it at a higher price or renting it out for regular income. However one must keep in mind that unless a wise choice is made based on parameters like location, size, price, garage space etc., the outflow will start and there might be a problem in renting out the space or selling it in the future.
Once can also look at options like investing in websites (which are a great business these days), having a small business etc.
For people who don’t want to take any risk at all, even small savings of a % age of your monthly income in a bank account can add up to a substantial amount before you realize it.
It is also true that as the responsibilities grow and family size increases, the potential to take risks and the funds available for investment start reducing and hence it is strongly advised that such investments are made when you are you and do not have too many responsibilities. This is also a catch-22 situation as most of us don’t have sufficient funds to invest at a young age.
Hence while looking for options to invest and grow your income, keep in mind that
a. No amount is small , once can start with $500 and sky is the limit
b. It is not a get-rich-quick scheme. You will have to keep at it and continue for a fairly long time
c. A lot of reading and understanding will have to be done before starting to invest.
So while there is no age at which you can start investing, young people have a distinct advantage over the older ones since the responsibilities are less and they are more open to risk taking.
