5 mistakes millennials should avoid to make the most out of stock investing

NEW DELHI: India, home to over 400 million millennials, will soon become the youngest country in the world, with the share of young population rising to 34 per cent of total population and 45 per cent of the workforce.

Their consumption and financial behaviour will play a major role in steering India’s economy and financial markets.
While ‘living in the moment’ and ‘splurging for instant gratification’ are attributes assigned liberally to this generation, recent survey showed the young and educated in India have also started to save early.

Financial market veterans say stock market is the place for early savers, as the magic of compounding works wonderfully over longer periods. While many Indians, including the young, have already embraced the culture of mutual fund investing through SIPs, financial advisers say they are prone to making some common mistakes, which may take away the benefits of investing early.

Financial advisers and industry veterans ETMarkets.com contacted listed out the following dos and don’ts for the millennials trying to navigate through thorny stock market.

  • Don’t follow the herd mentality

Youngsters venturing into stock investing should keep in mind that what might have worked for your uncle, neighbour or a colleague at a particular point in time may not necessarily work for you. That is why instead of getting influenced by your peers, make your own rational and logical decisions to invest in a stock.

  • Don’t be impatient

A lot of people from the younger generation venture into the equity markets believing that it is the place to make quick bucks, earn swift returns and get rich overnight. But the reality is way different. “You may occasionally see short-term profits, but may also end up losing large sums within a short term when the market turns volatile. Keep in mind that equity is a long-term avenue, and not short one,” says Anil Rego, founder & CEO – Right Horizons.

  • Take only as much risk as you can digest

Since millennials are often characterised as impulsive decision makers, they tend to take on more risks than they can digest. Rego’s advice to them is: “Understand the risk you can take and play within your means. But, don’t be too conservative, too.”

One can achieve the optimum risk level if there is an understanding of his risk appetite while bein aware of the liquidity needs. Consult your financial adviser to to figure out your risk appetite.

Don’t be blinded by one aspect 

Often while making an investment decision, a young person might end up considering only one aspect, say past returns. Such an approach can invite trouble. A thorough understanding of a company’s balance sheets or its business and operations or the behaviour of a product is a must. Ashish Kapur, CEO, Invest Shoppe India, says one should invest according to a carefully thought out plan and should not simply chase momentum or a favourite hot theme or sector.
  • Don’t fly solo, take help

If you are a novice in investing or don’t have the requisite knowledge or time to analyse a particular asset class, always take help. “The young should approach a financial planner who can work out an asset allocation plan based on the person’s unique risk profile and needs,” says Kapur.

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