The India saw the highest number of Demat accounts opened during the pandemic. Many youngsters working from home had time and money to deploy into speculative assets without understanding the basics of investments. The bull run of two years was good enough for them to hike their bets on these assets and, with the crash in the markets; they are finding themselves in a fix with huge losses in the portfolio. The easy money-making through assets like equity, commodities, and crypto swayed the inexperienced earners to allocate enormous funds towards these assets. However, this is a crucial phase of their investment journey that will show them a path forward. The crisis will teach them that the wealth accumulation process cannot be achieved in the short term as it takes years to build wealth. All Investment Gurus- Warren Buffet, Mark Forbes, Rakesh Jhunnwala, and others have gone through the ups and downs to reach where they are today. We are bringing below some of the basics theories that the Millennials should adopt from their recent experience with volatile markets;

1. Follow your goals, not returns

The youngsters like to chase returns, which disturbs their focus on achieving life's financial goals. The returns depend directly on the portfolio structuring and the financial goals one wants to achieve. The problem is that they do not understand the importance of goals and it is equally challenging for them to identify the important milestones of life. We find it is predominantly difficult with unmarried youngsters who start earning at an early age. They need to understand that age is by their side and that the power of compounding plays a significant role in building wealth for them in the long term. One should not chase returns; one should rather chase goals as returns would follow on their own if one remains focused.

2. Asset Allocation is the key to handling volatility

It is difficult to understand volatility if one doesn't have the right mix of assets. And this situation arises when one invests without direction and purpose. Therefore, drawing out your goals is essential to ascertain the right mix of debt, equity, gold, or any other asset. The plans can be like buying an expensive car after ten years, starting a business after 15-20 years, retiring after 25 years of working, or any such milestone. Many such plans need structuring a portfolio with the right asset allocation to help handle volatility. All stock or speculative-oriented portfolios can be problematic for many as heavy exposure can ultimately lead to capital erosion.

3. Patience is the key to enhancing your returns

Patience is one of the critical aspects to maximize your returns. One shouldn't be disturbed to see negative returns in the portfolio with the market crash. Your long-term investment absorbs all the ups and down to deliver the targeted returns. The desired returns shouldn't be unrealistic, which is difficult to achieve as underachievement would always disappoint. An easy way to deal with this situation is not to review the portfolio in short intervals.

4. Make systematic investment your habit

It is a common problem with millennials that they don't have an organized and systematic approach to their investments. Their aspirations toward materialistic life don't allow them to prioritize saving money for the future. Thus, it is vital to budget your expenses, so you do not miss allocation to investment from your income any month as you don't do your weekend outings. Tools like SIP, recurring deposits, PPF, and many other avenues help you with forced savings that bring discipline to your investment behavior.

5. No investment is Risk-Free

In an investment world, there is nothing like a Risk-Free investment. The safest instrument, like Bank FD, is secured for a limited amount only and the saying is appropriate MORE THE RISK, MORE THE GAIN. However, choosing an asset based on its risk-reward would be advisable. Equity is undoubtedly the best asset to give you high returns still, it is crucial to understand the suitable methodology to take exposure in equity. You cannot make your portfolio risk-free, but you can make it less impactful in any market correction.

The above are some learnings youngsters can adopt, but the parents should share their experiences. It would help them handle their funds with care and gain enough experience to manage inheritance with maturity. In the digital world, they have access to an abundance of information, but the proper guidance can help them to channelize their theoretical knowledge into sound practice. And it would be most appropriate to bring them in contact with your financial advisor so that they get the values the family has adapted to create their net worth.


Share this post