Don’t know how much to invest? Money9 helps you out

Sipping on your latte and thinking about how 2021 would be, that you perhaps imagined for 2020 as well is a classic rope-a-dope! Well, 2020 – the year of ‘Catastrophe’ – has made us realize the need for savings. The best way to save or grow your money is by investing the right amount of money in the right place and at the right time.

“Money loses its value over a period of time due to inflation. Money should be invested in such a way that it should earn post-tax returns higher than inflation. One must invest regularly to achieve financial goals,” says Pankaj Mathpal, Personal Finance expert.

For the millennials, who have just started earning or wanting to save their money for the future, the most important question is how much should you invest as per your salary and age. To answer all your doubts, Money9 has spoken to two personal finance experts.

At what age you should start investing?

Keeping your money aside in a bank account may not be the best way to save as your money won’t grow. As per Pankaj Mathpal, “your investment should start with your first paycheque.” There is no minimum or maximum age to start investing your money.

How much should you invest as per your age?

It is very important that your savings goals should be according to your lifestyle. Before investing money, you should know your expenditures and long term goals. Pankaj tells us that Investment should be based on financial goals and one must try saving at least 30%-40% of salary. He says, “Start early, save regularly. Think beyond traditional investment products.”

How much should you invest as per your salary?

First things first, for the youngsters, Income – Savings = Expenses should be the thumb rule. Paying yourself first helps you to manage your goals and the problem of overspending doesn’t occur. Prableen Bajpai, founder of FinFix®️ says, ” As a young investor, it is important to ensure that one is able to keep expenses under check so that there is a decent proportion left from the salary to allocate towards investments. Around 20-25% of salary is a good starting point.” Before investing, it is very important to set aside an amount for emergency funds as well. “One must build a contingency fund for emergencies which can be parked in a liquid fund or sweep-in fixed deposit,” says Prableen.

Where should you invest your money?

Risk and return go hand in hand. Hence, before investing, matching your risk profile is important. Although, some investments come with low-risk, giving lower returns. As per Prableen, “The choice of the product should be based on the investment horizon, for example, for long-term goals such as retirement, a split between EPF and mutual funds. While for near-term goals, a low volatile product should be picked.”

For the youngsters, Pankaj Mathpal suggests, “maintain proper allocation between equity and debt. Invest more in equity when you are young and investing for your long term financial goals. SIP in mutual funds is the best way to create wealth in long term.”

Best investment options for the millennials can be:

Stocks

Stocks are equity investments. When you invest in stocks, you become a part-owner of the company from where you purchase shares. Owning stocks can be profitable when the share price increases. Investments in stocks mount up over time and generate profit due to compounding interest on it.

Mutual Funds

In layman terms, mutual funds are a pool of money. A trust collects money from different investors with the common investment objective and invests the money in the market. Mutual funds are an excellent option for beginners to invest and earn. You can invest in mutual funds via two routes: Lump sum amount or through Systematic Investment Plan (SIP). Lump-Sum investments are a one-time investment route. On the other hand, SIP investments are made in a fixed amount and at fixed intervals of time.

Gold

Possessing gold can be risky; therefore, investing in paper gold can be an alternative as it is economical. You can invest through gold ETFs. Investors must have a Demat account and a trading account before investing in gold. Gold performed well in 2020 with a stellar rise of around 28 per cent.

Fixed deposits

A Bank FD can be a safer option to invest. As per the need, an investor can opt for the interest option.

Public Provident Fund

The Public Provident Fund has a long tenure of 15 months. Therefore, the benefits of investing in PPF can be massive due to compounding ‘tax-free’ interest. Investing in PPF is safe as the interest earned on the invested amount and the principal invested amount is guaranteed.

Money9 says that there are no fixed rules for investing and your investment should be according to your earnings, situations and risk profiles. You should review your investment plan from time to time.