Before we start the discussion about best investment strategies in India for 30 year olds, we must first highlight the importance of investment itself.
What is the importance of investing money?
Without knowing the importance of investment, investing money will be like shooting in the dark.
Investment is a process which helps in wealth building over time.
Implementation of good investment strategies will build the wealth faster.
Implementation of mediocre investment strategies will build the wealth slower.
So, the bigger objective of investment is wealth building, and good investment strategies helps this bigger cause.
Best investment strategies in general
#A. Invest continually: A 30 year old can start investing by buying mutual fund units through SIP route.
Even if one is investing as little as Rs.1,000/month, it will make a big difference in times to come.
Using this small amount of money, each month one can also systematically accumulate quality stocks like TCS, Infosys, Tata Steel etc.
So, the most basic investment strategy is to systematically accumulate mutual fund units and/or stocks, time and again, till eternity.
But there is one rider here.
#B. Become debt free first: This is perhaps the most important investment strategy of all.
It is important to know that investment will always come next to the payment of costly debts.
If a 30 year old is carrying a costly debt, like a personal loan or credit card debt, he/she shall pay that first. This must be done before investing.
Only after all costly debts are closed, investment must be started. Why?
I know, this proposal may be causing confusion in your head. But believe me, leading a debt free life is far more important than investment itself.
In fact, to give a strong foundation to your investment castle, being debt free will ensure strongest foundation.
It is needless to pay high interest on costly debts and earn average returns on investment.
There is one more rider preceding our investment life cycle. What is it?
#C. Build a huge emergency fund: It is important to maintain a sufficiently big emergency fund.
Investment of money in equity is by all means risky. No matter how much precaution one takes, equity will remain to be unpredictable.
It means, we cannot rely of equity linked investment for near-term emergency needs.
Hence, before starting to invest in equity, one must develop a sufficiently big emergency fund.
Four months of monthly expense will be sufficiently big as emergency fund.
Suppose your monthly expense is Rs 50,000. In this case, your emergency fund should be Rs.2,00,000 (Rs.50,000 x 4) minimum.
Ideally speaking, the bigger is the emergency fund the better. But the lower limit is (before one can start diverting funds for investing), 4 times the monthly expense.
Do you want to know my personal goal related to emergency fund?
When I will reach 60 years of age, I would like to have an emergency fund equivalent to 10 years times my monthly expense.
I know, it may sound a bit flamboyant, but a combination of following is my life’s ultimate goal:
- Financial independence.
- Being debt free.
- Building a huge emergency fund.
- Having an investment portfolio 300 times the monthly expense.
Implementation of good investment strategies can lead one to such ultimate goals.
So lets see in more detail few implementable investment strategies in India which are very effective.
Implementable investment strategies…
The journey to find the best investment strategies in India for 30 year old starts here:
- First become debt free.
- Have an emergency fund equal to 4 times the monthly expense.
Once this target is reached, one can start thinking investment.
#1. Identify and schedule all future expenses.
How many of us know that why a 30 year old should invest money?
Money is important to maintain a standard of living. Its human nature to spend money and buy goods and services.
A person in 30’s are more susceptible to money spending.
People generally earn more than what they spend. This difference between earning and expense creates savings.
These savings creates options for debt repayment, emergency fund creation and for the investment.
The higher will be the saving, the more will be the option for investing.
The best investment strategy for 30 year old will be to first identify and schedule all future expenses.
Once this is done, start saving and investing to manage these future requirements.
Typical example of future expenses are like this:
Its true that not all expenses we can forecast in advance. But we can try to do it as accurately as possible.
In the process of wealth building, we cannot afford to do fire fighting and then expect to be rich.
A 30 year old must develop a long term vision for his wealth, and then implement it continually.
#2. Know the difference between savings and investment plans
People lock their money in savings plans in variety of ways like:
- Savings in piggy bank.
- Money in bank’s savings account.
- Savings in fixed deposits or recurring deposits
All these forms of savings has one common characteristics, they are too liquid options.
Means, the investor can redeem the money whenever he requires, and that too very easily.
But this high liquidity has its side-effects in the form of low returns.
- Piggy banks give no returns.
- Savings account gives extremely low returns.
- Fixed deposit’s returns is much lower than the market.
If we consider the impact of inflation, all these form of savings will give negative returns.
This means, people shall find investment options that are lucrative and gives positive net-of-inflation returns.
Those options which generates a positive net of inflation returns can be termed as an investment option.
Balance everything else can be considered only as a savings plan.
Best investment strategy will be to cleverly spread ones money among savings and investment plan.
#3. Learn to deal with inflation
The best investment strategy for a 30 year old will be to treat inflation as an enemy.
Inflation is a biggest deterrent for us in our pursuit of wealth building.
Even is one is saving judiciously, it is not enough. Why? Because inflation eats a big chunk of our savings.
Inflation is unavoidable. One cannot eliminate inflation. Inflation will happen.
Hence it is better to factor in the effects of inflation in our investment strategy, and take “suitable steps”.
What are the suitable steps?
To know it, we must first understand inflation.
Inflation of money is driven by demand and supply phenomenon.
Suppose a sweet shop has 100 customers per day. It sells sweets at Rs 5 per piece. All in all, total consumption of sweets in a day was 1,000 pieces. Sales turnover Rs.5,000 (1000 x 5).
A new residential colony came up near the sweet shop. As a result, the demand for the sweets went up. The shop was now selling 1,500 pieces per day. Sales turnover Rs.7,500 (1500 x 5).
The increase in demand enables the shopkeeper to increase the selling price from Rs.5 to Rs.7.
After the price increase the sales volume were as below:
- Total consumption : 1,250 pieces per day
- Sales turnover : Rs.8,750 per day
The price increase from Rs.5 to Rs.7 was caused due to increase in demand.
After the price increase, though per unit sales per day fell from 1,500 pieces to 1,250 pieces, but still the shop was making more money.
This is the impact of inflation.
People who can afford will continue to buy the product even after the price rise.
But the problem is with the people who cannot afford the price rise. These are the people who actually face the brunt of inflation.
Hence to remain inflation proof, it is essential to implement the best investment strategies.
A 30 year old can take more liberties and beat inflation better than their older counter parts.
What is the inflation beating strategy?
One must invest money in those investment options that beats inflation. Investment options like savings account, deposits cannot beat inflation.
Investment in equity (stocks, equity mutual funds), or real estate is the preferred option.
So the best investment strategy for 30 year old is to carefully distribute savings in inflation hedging investment options.
Having said that, I would also like to mention that, in long term beating inflation is not as easy as it may sound.
Best investment strategies cannot be expressed only in few bullet points.
A deeper understanding of the process of investment itself is necessary.
So lets see, what factors effects our investments…
#4. Learn to handle factors that effect investment
Investors must manage three basic factors while investing their money.
- The risk associated with the investment.
- Return on Investment (ROI) &,
- Self involvement while investing ones money.
Pro investors creates a perfect balance of these in their investment portfolio.
So it is worth digging deeper into these factors effecting our investments:
#4.1 Risk management
The management of risks associated with investment is very important.
Being aware of the possible risks of investing in an investment option is necessary.
There are risk free investment options available for investors, but their returns are low. There are high-risk investment options whose returns are high.
Hence it is essential for investors to take “calculated risks”.
What means by calculated risk?
Taking calculated risk means, investing money in a knowledgeable way.
Generally how we invest money?
One day my friend called me asking, how to stop a SIP.
When I asked him why he wants to stop SIP, he said, it is not giving returns as good as his other mutual funds.
When looked into his mutual fund portfolio, he had 3 mutual funds:
- Two were equity based
- One was debt based MIP fund.
He started investing in these mutual funds only 6 months back. As stock market was booming then, his equity based funds were giving higher returns.
But the debt based fund gave only 2.75% return in last 6 months period. Hence my friend wanted to stop this SIP.
When I asked him, “what prompted you to buy a debt linked MIP fund”, he said, “moneycontrol was giving high rating to that fund”.
This is a common phenomenon among we investors. Our lack of know how makes us dependent on others advice.
Here I would like to say that moneycontrol’s advice was not wrong. But my friend bought a MIP fund considering it to be a equity based plan.
The point I am trying to highlight here is that, major investment risk builds up due to “our” lack of know-how.
The best way of investment risk management is keep reading good articles and books on investment.
You will be surprised to note that how quickly you are picking up the required skills.
#4.2 Your know-how and return on investment (ROI) are linked…
People invest money with a hope to earn the highest ROI. It is not wrong to expect so.
When we invest money, we are temporarily parting ways with our money. During the period our money stays invested, it may also lose its value.
This is what is called “investment risk” (the risk of making a loss).
In #4.1 we understood that, investing money in options about which we have good know-how, reduces the potential risk of loss.
Lets take an example for more clarity.
Suppose you want to earn a return of 15% per annum on your investment. If you are knowledgable enough, you will know that any debt based investments cannot fetch you this returns.
Hence, you will have to invest in equity. But equity is risky. What does it mean?
It means, more knowledge is required to invest profitably in equity (like shares).
The higher is the ROI expectation, higher level of expertise (know-how) is desirable on part of the investors.
#4.3 Get yourself more involved with your investments.
Generally what we think, our job is only to buy a mutual fund unit. Then, it is the responsibility of the fund manager to get us higher returns.
This is not a wrong assumption.
But if you want to earn 12%, 15%, 18%…etc level of returns, complete dependency on the fund manager will not suffice.
To earn higher returns, we must get equally involved (like our fund managers).
Take my words for it, this effort really pays off.
So what we must do to get involved? Following are my suggestions:
- Follow the 50-30-20 rule of budgeting.
- Practiceneed based investing.
- Learn the concept of asset building.
- Practice fundamental analysis of stocks.
Why we must learn all this stuff?
Because this is the way forward of practicing the best investment strategies in times to come.
The bigger idea is to keep generating inflation beating returns with minimum risk.
The best investment strategies in India for 30 year old’s are the following:
- Strive to become debt free first.
- Make sure that you have amassed just enough emergency funds before starting to invest.
- Once you have sufficient emergency funds, begin a SIP and start getting a feel of investment.
Once you have achieved these three milestones, begin to draft an expense budget. Keep funds allotted for investment.
Before actually putting your money into work, try to gather as much information as possible about all investment options available for you.
Once you are done with this, follow the below important steps:
- Learn how to deal with inflation.
- Become aware how to mitigate investment risk.
- Know what is necessary about return on investment (ROI).
Here you are prepared to buy your first stocks and real estate property with your 100% involvement.
Believe me, you will enjoy this journey.
Have a happy investing.