Before we start the discussion on best investment strategy for 30 year old, we must first highlight the importance of investment itself. Without knowing the importance of investment, investing money will be like shooting in dark. A 30 year old can start with the first steps of investment like investing in SIP. Even if one is investing as little as Rs 1000/month will make a big difference in times to come. Using this small amount of money, each month one can buy price stocks like TCS, Infosys, Tata Steel, HDFC etc. But before we proceed, it is important to know that investment will always come next to payment of costly debts. If a 30 years old is carrying a costly debt like a personal loan or credit card balance, he/she shall pay that first. After payment of all costly debts, investment shall be tried upon. It will be needless to pay high interest on costly debts and earn average returns on investment. It is also important to maintain a 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 reply of equity linked investment for funds during immediate emergency. So before starting an investment in equity, one shall develop a sufficient emergency fund. Four months of monthly expense will be sufficient as emergency fund. Suppose your monthly expense is Rs 50000, your emergency fund should be equal to Rs 50000 x 4=Rs 200,000. It is advisable to gradually keep growing the emergency fund. When I will reach 60 years of age, I will personally like to have a emergency fund equal to 10 years of my expense. If my monthly expense is Rs 50000, my emergency fund, at 60 should be equal to Rs 50000 x 120 =Rs 60,00,000. The journey to find the best investment strategy for 30 year old starts here, after payment costly debts and after maintaining emergency fund.
As I said, before we start the discussion on best investment strategy for 30 year old, we must first highlight the importance of investment itself. 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 in 30’s are more susceptible to money spending. Majority of people earn more than we spend. This difference between earning and expense creates savings. These savings creates options for debt repayment, emergency fund creation and for investment. The higher will be the saving, the more we 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:
Its true that not all expenses we can forecast in advance. But we can try to do it as close as possible. Because in wealth building we cannot afford to do fire fighting and then expect to be rich. A 30 year old must have a long term vision of how to get rich.
People lock their money in as savings in variety of ways like (1) in savings in their piggy bank, (2) savings in bank savings account, (3) savings in fixed deposits or recurring deposits etc. All these forms of savings has one common characteristics that they offer great liquidity. The investor can draw the money out when he requires and that too very easily. But his high liquidity has a side-effect in form of returns. Piggy banks give no returns, savings account gives very low returns, and deposits gives below average returns than the market. If we take net of inflation return, all these form of savings will be negative returns. This means, people shall find investment options that are lucrative and gives positive net-of-inflation returns.
Best Investment Strategy for 30 Year Old will be to treat Inflation as a enemy
The first thing that can act as a biggest deterrent for us in our effort to become rich is inflation. Even though we are saving judiciously, still inflation will eat into our savings. Inflation can well be understood by this example. Inflation of money is driven by demand and supply phenomenon. Suppose a sweet shop which sells sweets at Rs 5 per piece has 100 customers per day. All in all, total consumption of sweets in a day is 1000 pieces. A new residential colony came up near the sweet shop. As a result, the demand for sweets will go up. Hence the sweet shop owner had the power to increase the price of sweets from Rs 5 to Rs 7. This is an example of increased demand resulting in price rise of sweets (inflation). Similarly if another sweet shop in the same area. It will result in increase of supply, with demand remaining same. In order to attract more customers, sweet shop will start preparing better sweets but at better price.
Similarly the demand and supply changes of products in the market pushes the price of goods and services. When demand is increasing and supply is not matching its pact, it will lead to inflation. It is very important for an economy to have some inflation. Too high is bad and even negative inflation is not good. Inflation gives an opportunity to companies to increase their selling price of goods leading to increased turnover and profits.
From point of view of investors it is very important to learn to manage inflation. As price of goods is increasing due to inflation, hence our savings shall also appreciate in the same speed at least. One must invest money in those investment options that beats inflation. Investment options like savings account, deposits cannot beat inflation. Hence investors are bound to use riskier forms of investment like shares, real estate, precious metals, mutual funds etc. So the best investment strategy for 30 year old is to carefully distribute their savings in inflation hedging options. Our money shall appreciat faster than inflation.
Important Factors that Effects Investments
Investors must manage three basic factors while investing their money. (1) Investment Risk, (2) Return on Investment & (3) Liquidity of funds. All good investors creates a perfect balance of these three in their investment portfolio.
(1) Investment risk management is very important. Being aware of the possible risks of investing in an option is necessary. There are risk free investment options available for investors but their returns are low. This is the reason why investors opt for riskier options to maximize their returns. But my advice to my readers shall be to take calculated risks. When I say calculated risk I mean not to invest blindly. It is not the same thing as buying stocks of unknown company and a market leader. Buying stocks of a market leader means this company has very strong fundamentals. Fundamentally strong companies will give more reliable future returns. It is not the same thing as buying a undervalued stock and an overvalued stock. Buying undervalued stocks means we are buying stocks at market price which is below its intrinsic value. Undervalued stocks will give higher future returns. It is not the same thing as buying a dividend yielding stock and a speculative stock. Dividend stocks ensures short term earnings.
(2) Return on Investment (ROI) is the basic requirement for which people put their money at risk. The higher is the risk, the better will be the returns. But again, in order to ensure returns from riskier options, we must take calculated risk. The idea of opting for the best investment strategy is to generate inflation beating returns with minimum of risk.
(3) Liquidity is also very important factor in deciding an investment option. Even shares these days are considered a liquid form of investment. Because the each with which we can buy and sell share online, it has really become liquid. Of course liquidity is not only decided by the easy of transaction but also on effect of volatility of price on investment worth. I have been practicing stocks market investment for quite some time now. Compared to real estate investment, for sure shares are more liquid. Liquidity is the easy with which you can recover back your investment fund at the time of need. These days with online trading become so prevalent, you can afford to sell your shares with a click of a button.