The GenZ’s today who are in their 20s are earning much more than any other previous generation. They have more opportunities and resources available to them than one in history had. But one thing they really suck at is finance! They are not good at managing their finances as FOMO and YOLO drive their financial decisions. They also fall for the Ponzi advice of Fin-Influencers assuming their views and followers to their credibility.
True credible advice is that which considers your investment objectives and risk appetite, without knowing anything about the person, and then telling them to buy-sell a stock or any investment instrument is just a tip you can't call it advice.
From Delusion to Reality
Well, this article is going to talk about long-term wealth creation so please keep your patience intact as it is the key to wealth building. Wealth is created over time so that it can compound even when you are on vacation, but you have to start and take the first step as early is always better. Legendary investor Peter Lynch once said that if you just pay attention around you, you can beat the Wall Street analysts. You may not always need a dedicated wealth manager who can handle your money for you and also get commissions there are standard ways of wealth creation with which you do just as good a professional wealth manager.
The first thing you need to figure out is your investment objective why is it that you want to invest your hard-earned money in securities? what is it that you expect from it? Do you realize the risk involved? Don’t think too hard it's not that difficult to answer these questions. While you may not have any specific goals or your mind always keeps changing about new short-term needs it's okay that you haven't figured out it yet. Let us understand how to figure it out.
GenZs have a lot of wage differences as they explore more creative opportunities than doing regular jobs and earning at a very young age. Therefore it becomes very difficult to give personalized wealth creation advice that's why we have built InvestMates for you. But let me tell you how you can generally plan your wealth.
Planning Wealth
The first thing would be to list out the dependencies or debts you have for example education loans, house loans, children, parents, rent, etc.
Subtract all your essential expenses from your monthly income. This will give you your disposable income, which is the amount of money you have left to save or invest. You should aim to save or invest at least 30% of your disposable income every month and use the remaining 70% for your discretionary spending, such as entertainment, hobbies, or travel.
Next, you need to identify your financial goals and time horizon. In my experience with Gen-Zs, an important part of it is the discovery of their goals as they mostly tend to have unique goals than the traditional ones such as buying a house, starting a business, retiring early, etc.
Therefore you can have a mix of short-term, medium-term, and long-term goals, for example, a short-term goal can be a Trip to Europe in the next six months (short term), Buying a Car next year (medium term), Retire Millionaire (long term). You need to prioritize your goals and ambitions more pragmatically.
Once you are clear on what goals you have and how much to invest every month the next step is investment allocation or asset allocation. The objective of starting wealth creation early is to take the best advantage of different market opportunities but you have to be clear about your risk appetite or how much risk you want to take so that accordingly investment can be planned. In our app Investmates we have clearly defined how your asset allocation should be based on your risk profile.
The higher the income less aggressive the taker investor is and vice versa. If you are starting anywhere between 23 - 30 and earning more than a lakh a month you should be able to take aggressive to moderate risk and as you age slowly shift to being conservative. What this means is you can allocate 50% of your capital in Equities, 30% in Fixed Deposit, 20% in Bonds or debt instruments. In equities allocation based on your risk, you can allocate between small-cap, large-cap, and mid-cap mutual funds. While you do all this do not over diversify by adding a lot of different investments.
The Bottom Line
Being delusional can not be the solution to anything at least not in capital markets and wealth building. You have to take it realistically and keep your expectations grounded. This is not a quick-rich scheme but a journey of consistency, discipline, and time.
You have to keep investing consistently and maintain your investment returns beating benchmarks and inflation. SIPs today have made investing so much easier just that it has to be done in the right assets. In the wealth creation journey, you also have to take care of Tax liabilities, Credit scores, Insurance, Debts, etc. Worry not we will talk about these things in detail in an upcoming article.