Investment should be started at an early age. New Job seekers in their early 20s are at the perfect juncture in their life to start investing. While a new job rejuvenates a youthʼs life and lifestyle, investment adds a touch of pragmatism to this lifestyle. As soon as you start earning for the first time, fulfilling the material aspirations that you always dreamt of is quite normal. However, early investment doesnʼt demand a lot out of your paycheck.

Several reasons make early youth the perfect time to start investing. The primary advantage is the abundance of time that you have on your side. More time, which could be three to four decades till your retirement, means that you have a higher risk appetite. Even if the market goes through a slump, you will have years to recover from it. Secondly, when you start early, the power of compounding will have a massive role to play. Even if you invest small, the regular contributions will accumulate to huge proportions over the long duration. Besides, your spending habits will also improve when you plan your finances early in your life. This habit is something that will stick with you for the rest of your life, and with handsome returns along the way.

Designing your ideal portfolio is like setting up a sports team, or even a military setup. You have the personnel to look into the attacking and defensive part of your strategy. Your insurance covers are like the first line of defence. Any danger that comes your way meets the formidable insurance wall and is deflected way, leaving you unharmed. Contingency amounts, government saving schemes, and tax-saving options are the other defensive additions to your portfolio. They help you in saving tax money and earning a stable return. Mutual funds and SIPs tap market growth in varying degrees in a combination of defensive and attacking strategies. While ambitious equity investments are your aggressive moves, which carry more risk and more reward in the long run.

Each investment you make will serve a specific purpose. Letʼs look into it in a bit more detail.

Before anything else, having sufficient insurance ensures that your portfolio stands on a firm pedestal. A term life insurance policy takes care of the financial needs of the surviving family. It is particularly important if you are the breadwinner in your family. Health insurance is another area where you can add protection to your portfolio. Health cover ensures that the savings and investments in your portfolio are not dented in the event of a large medical bill. Both these insurances will involve a premium payment but are a necessary protection for any portfolio

Besides, if you start early, the premium amount will be much lower in your case.

Investment is a commitment. Before you commit your disposable income to investment avenues, you should set aside a portion every month to meet your emergency needs. While you can always arrange a personal loan or a loan against your assets, an emergency fund will help you meet any urgent financial needs.

Provident Fund, National Saving Certificate, Fixed Deposits are all types of stable income sources. As a young adult, you can opt for a PPF account and invest for 15 years to earn one of the best fixed income returns in India. Fixed deposits offer more flexibility with customized lock-in periods and different product options. With the right financial institution, you can earn an excellent return on your fixed deposits.

Notably, several fixed-income investments are also tax-saving investments. Apart from the employee provident fund, PPF, NSC, and five-year FD are tax-free investments.

Market-linked investments, popular being mutual funds, are a great way to reap market benefits while maintaining the guided support of expert fund managers. Mutual funds come in a variety of categories. Debt-heavy funds rely on fixed income sources like government securities, with limited exposure to equities and volatile markets. You can increase your market exposure by going for hybrid funds that combine both debt and equity assets. Further foray into equity could be through the more reliable large-cap mutual funds. The risk and return both increases as you go for medium and small caps. Flexi-caps offer more flexibility to the fund manager in terms of equity preferences. Someone starting a SIP at a young age can look for aggressive mutual fund categories to seek long-term growth.

Through mutual funds, you can also open up your exposure to the commodities market that invest in gold, fuel, cash crops, food grains, etc.

While all of the above investments have the investor in a passive role, direct involvement in the market is where the real return and challenge lies. As a young investor, you will have time to dip your toes in the ocean of knowledge that is the financial market. Even if you suffer losses, you will have several market cycles to recover from recessions and benefit from surges.

As a starter in the equity market, you should start small and with low risk. Identify companies with a solid background, strong fundamentals, and stable future. You can invest in such shares with a long investment time frame in mind. Your investment tenure can be chosen depending on the reliance you can place on such companies and their shares. You can make investments for shorter periods if you see promise in the current performance of a company or an industry.

The thumb rule followed by many when it comes to investment in the share market is 100 – your age = percentage of equity investment in your portfolio. For a 25-year-old, even a 75% investment in equities is not surprising. But apart from how much time you have, how much risk you are willing to take also decides your market involvement.