Young Investors on the Rise: Investment Hacks for the Digital Generation

Many young investors are still in the early stages of their careers and their initial earning phase. According to market experts, many investors are not very dedicated to their investment planning in their initial years of financial life. Meanwhile, this smart lot of young investors have been quite interested in stock trading and mutual fund investments since their first paychecks.

This is due to increased awareness, ease of accessibility to investment avenues with online platforms, etc. However, unlike the previous generation, which focused on capital protection and low risk, they prefer investment alternatives with attractive high returns, lower lock-in or easy withdrawal, and platforms with higher flexibility and convenience.

It's no surprise that novice investors are attracted to digital investment platforms due to their convenience and affordability; plus, these platforms focus on account creation and payouts of the returns in a timely manner.

[Read: Smart Personal Finance Tools That Can Help Enhance Your Financial Wellbeing]

Having said that, equity markets and mutual funds continue to be the preferred choices of many young investors as they hunt alpha returns. Savvy new-age investors also park some funds in risk-averse avenues like Bank FDs and gold to diversify and balance their overall portfolio.

But is it all just YOLO bets, or is there a method to their millennial madness? We are about to explore the rise of the young investor: a force reshaping the market with every swipe, scroll, and meme.

The reasons behind the rise of young investors in the market...

Young investors have grown up surrounded by technology. They're comfortable navigating the online world, researching investments through apps and social media, and making trades with a few taps on their phone screens. This ease of access has democratised investing, making it more approachable than ever before.

Given that in the current environment, young individuals are burdened with student debt, rising living costs, and an uncertain job market. They have also witnessed daunting years filled with stress and financial crisis due to the impact of the COVID-19 pandemic.

This makes them realise the importance of financial stability and look for ways to secure their financial future and achieve financial freedom as early as possible. Investing, whether in well-known assets like bank FDs, equities, bonds, mutual funds, or latest trending avenues like cryptocurrency, digital gold etc., is seen as a path to wealth creation and financial independence.

[Read: 5 Apps to Invest in Mutual Funds Online in India]

Young investors are learning from each other, sharing tips and financial strategies, and even discovering new investment opportunities through viral investment trends and memes on social media. This peer-to-peer learning fosters a sense of community and encourages individuals to focus on their investment plan for a secure financial future.

The current uncertain economic environment has made saving and investing huge sums of money more challenging. There are some hacks that can help young individuals manage their finances in a better way in the coming year.

Investment hacks for the digital generation

• Micro-investing Apps: These apps allow users to invest small amounts of money, often as little as Rs 100/- or even 1 rupee, into limited investment avenues such as digital gold or SIP in some mutual funds. This makes investing accessible even to those with limited budgets and encourages a habit of regular saving and investing.

• Stick to a Budget: The golden rule of Budgeting can help take your savings a long way. Use these boundaries that you set for yourself to help you avoid any financial stress by overspending. There are various apps that help you create a suitable budget which is easy to follow.

  [Read: How Millennials Can Exercise Caution with Fintech Apps While Investing In Mutual Funds]

• Use the Power of Compounding: The power of compounding is magical. It is the one true tool that can change your savings into a millionaire fund over a long period of time. SIP in equity mutual funds, based on your suitability, is an ideal option to benefit from the power of compounding.

• Side Hustles Could Assist Savings: In this digital day and age, having multiple sources of income is not only advisable but has become a necessity. Given the rise in price with a high cost of living, it is essential that your salary is not the only source of income. If you have the bandwidth, starting a side hustle could be a wise decision. In a way, this surplus money could boost your savings and allow you to invest effectively.

• Maintain an Emergency Fund: If there is anything that the COVID-19 pandemic has taught the world, especially the generation that spent their ripe years of youth in lockdown, it is that one must always be prepared for emergencies. It's never too late to set aside an emergency fund.

• Approach investments prudently: When investing in direct equities or stocks, understand the fundamentals like company profile, the sector it belongs to, the undercurrent and prospects of the industry, its business model, whether the company has a moat, its competitors, the calibre of the management. And quantitative factors like Return on Capital Employed (ROCE), Return on Assets (ROA), the dividend payout history, dividend yield, among others Valuation ratios, viz. P/E, P/B, P/sales, etc.

  Similar to this, while selecting mutual funds, consider a variety of quantitative and qualitative factors, such as comparison with peers, risk-reward ratio, expense ratio, fund house credibility, fund manager's experience, portfolio characteristics, etc., rather than relying on past performance and superficial mutual fund star ratings. Additionally, ensure your schemes are aligned with your investment goals.

  Likewise, when investing in Bank FD, ensure you book one with a reputable bank and do not get lured by the interest rates offered.

  [Read: Navigating the Market Landscape: How to Approach Equity Mutual Funds in 2024?]

• Socially Responsible Investing: Young investors are increasingly interested in investing in companies that align with social and environmental values. This focuses on factors like sustainability, diversity, and ethical business practices. This means investing in companies that positively impact the world, not just generating profits. Sustainable investing is the new investing trend in the market which has gained traction.

Despite their enthusiasm and tech-savviness, young investors may also face challenges. Lack of financial education, volatile markets, and the potential for misinformation online can pose significant risks. Young investors must approach the market cautiously, research, and develop a sound investment strategy.

Here are some tips for young investors to keep in mind:

One may consider beginning with passive mutual funds like Index funds to avoid the risk of stock selection bias or fund manager's decision going awry.

• Enhance Your Financial Literacy: Before investing, take the time to learn about different investment options, understand the risks involved, and develop a clear financial plan. It will also help you define your suitability for various avenues.

  Remember, improving your financial knowledge is a continuous process, not a one-time event. There are numerous online resources and educational platforms available to help you get started.

• Start Small and Diversify: Don't jump in headfirst with all your savings. Start with small investments like SIP in the best suitable mutual fund schemes and gradually build your portfolio over time. Diversification is key to mitigating risk, so spread your investments across different asset classes, sectors/themes.

• Set S.M.A.R.T Goals: Don't expect to get rich overnight. Investing is a long-term game, and it requires patience and discipline. Set realistic goals for yourself, whether long-term or short-term and focus on building wealth over time. Ensure that your investments in mutual funds are aligned with your goals.

• Seek Professional Advice: If you are unsure about anything, don't hesitate to seek professional advice from a qualified SEBI-registered financial advisor. They can help you develop a personalised investment plan and make informed decisions based on your individual circumstances.

The future of investing is digital; it emphasises on sustainability and fintech developments. However, all things considered, one may consider their suitability based on risk tolerance, investment horizon and goals before investing and make informed decisions to maintain their financial well-being.

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MITALI DHOKE is a Research Analyst at PersonalFN. She is an MBA (Finance) and a post-graduate in commerce (M. Com). She focuses primarily on covering articles around mutual funds including NFOs, financial planning and fixed-income products. Mitali holds an overall experience of 4 years in the financial services industry.
She also actively contributes towards content creation for PersonalFN’s social media platforms in the endeavour to educate investors and enhance their financial knowledge.
 

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.