Have you ever heard about portfolio management tips for young investors and wondered what the concept is all about? Do you find it weird that people want you to start managing portfolios at such a young age, when you aren’t even sure what a portfolio means? Well, let us consider some instances you might have faced in recent times. Are you an Apple fan or do you prefer the more new age OnePlus? Have you been itching to get your hands on the upcoming smartphone release, without a clue about how to afford it? Maybe some of you started your entrepreneurial journeys during the pandemic, setting shop at home and catering to customers looking for exotic goodies, new normal fashion choices or coding solutions. With strong demand, you are keen on scaling your business next year, and require a significant amount of capital. Or you may be planning on buying a car for your parents, a few years down the line… it could be any of these instances but the one thing we see in common is the need for capital.
You know you need money for each of these actions but how do you arrange for it in the most optimal way possible? The first option is, of course, earning and saving money. But, that is a long road and you will probably not be able to meet your goals by just sticking to saving money. Maybe you could borrow some money from your parents or get a loan… but, as young adults, few of you would be inclined towards either of those options. After all, you want to make it on your own, without taking on additional debt. Well, that brings us to investing the money you are earning, and this is where the concept of portfolio management tips for young investors comes into play.
Portfolio management tips for young investors
Now that you know why you want to invest, the questions which remain are – where you should invest and how you should go about the process. You need to create a portfolio capable of meeting multiple goals, as you move ahead in life. These could include building the seed fund for your start-up, accumulating a corpus to fund your future education in a foreign country, or even the capital required to set out on a world tour. Each individual’s portfolio is disparate, given their different requirements and dreams, and optimal portfolio management tips for young investors can help you achieve the goals that have been keeping you awake at night.
When considering portfolio management tips for young investors, the first aspect to keep in mind is your risk profile. Look at how you react to risk by glancing at your past – are you the first one, or the last in your group, to venture into unknown territory or sign up for adventure sports. Would you willingly try extreme sports like bungee jumping or maintain a safe distance? Your response to risk indicates your risk appetite and it is important to ascertain this before creating your portfolio. Further, also consider aspects such as your necessary expenses and debts, such as student loan, to figure out how much risk you can, ideally, withstand.
The next thing to look at, in terms of portfolio management tips for young investors, is the returns you require on the portfolio, to realise your goal in the pre-decided time horizon. If your goal is a few years down the line, you can afford to go with high risk and high returns, but, if you need the capital at a quicker point in time, you should avoid high risk situations which could end up causing you losses over the short-term and upending your plans. The longer your time horizon, the more risk you can tolerate, especially since you are young and have a long career or earning period ahead of you.
There are many things we can consider while listing portfolio management tips for young investors but you should always focus on the important tips instead of getting caught up in the flood of information. Now that you have decided on your risk appetite, time horizon and return requirement, you are ready to create your portfolio. However, managing it optimally is equally important. While it may sound difficult, there are just a few simple things that you need to keep in mind:
Stick to your asset allocation strategy – While creating your portfolio, you would have decided how much to invest in which asset. For example, your portfolio strategy might dictate that 60% should be invested in equities, 30% in debt, and the balance 10% should be kept as cash in the bank. Once that is done, stick to it unless there are some major changes in your personal circumstances or the investment environment.
Don’t get anxious – It is important to stick to your guns and stay invested through thick and thin. Human beings are by their very nature emotional beings. It is very difficult for us to not respond to change and movement. However, if you are an investor, especially an equity investor, then you must avoid responding to short-term market movements. Do not give in to emotions like panic, fear or greed.
Don’t follow your friends’ advice blindly – Your friends may be great at investing but their requirements and goals might not align with yours, so take all advice with a pinch of salt. Know what you want and stay focused on the end goal. Better still, approach a professional financial advisor who can guide you on your portfolio management and financial planning path.
Sometimes, things can seem harder than they actually are. Building a long-term investment portfolio is one of those things which seems challenging but, if done right, can be very easy. With these portfolio management tips for young investors, there is no stopping you from creating the optimal portfolio and realising all your ambitions!
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