At 22 how should I design my investment portfolio and invest regularly?

Last Updated on October 27, 2020 at 12:17 pm

Sandeep asks, “can you please advice me on how a 22 aged guy should design his investment portfolio & invest regularly?” When the right question is asked at the right time, it can be a gamechanger. We will leave it to the judgment of the reader whether the question was posed to the right person 🙂

Sandeep says part of his monthly earnings goes to his parents and the rest is currently in a savings bank account. He wants to know how to make use of this investment surplus efficiently. At 22 if I had money in my account, it would be vaporized in an instant!

The basic steps to begin right have been covered before – At 21 my salary is too much! How should I invest? – so we shall mention them briefly and focus on how to have a long term view of Sandeep’s net worth.  Let us start with a checklist.

1. Get life insurance (15-20 times annual income)
2. Get health insurance for parents (if not present). Get a separate health cover for self.
3. Build an emergency buffer. If your income is, Rs. 25,000. You should gradually, over the next few months, build an initial emergency buffer of about Rs. 1.5L and then keep adding 5-10% of your income each month to it. If it depletes due to an emergency, replenish by temporarily stopping investments.
4. List your short term goals: needs or wants you can imagine within the next seven years or so. You can allocate some money for them ( any online goal calculator would do with about 6-7% pre-tax return assumption). Use a bank RD or a liquid fund or arbitrage fund or money market fund for these. For recommendations see: Handpicked List of Mutual Funds Oct-Dec 2020 (PlumbLine)
5. The rest you have left with you can be allocated towards financial independence.  Say Rs. 5000 is left and say Rs. 3000 is the total EPF/NPS contribution (employee + employer; ignore EPS contribution). Invest Rs. 5000 in a Nifty or Sensex index fund. If you have NPS, opt for 50-70% of gilts (G) and rest in corporate bonds (C).

This is all the portfolio design that is necessary! What is more important is to make use of the time you have. Most people think like this in their mid-thirties. So you have a huge head start. If you take a long-term view, you could achieve financial independence in about two decades.

How to think like a rich person

The steps above would give you the right start. Let us now discuss how to sustain this momentum; How to think long-term. As Jeff Bezos said, we need to have 25, 30-year view of life. We need to tell ourselves, “today my net worth may be zero, but in two decades I will be a crorepati; In three I will be a multi-crorepati;” Don’t share this with anyone. the first thing they would tell you is, “it is not possible”. Then, as Jim Carrey said, “you work hard!” and focus on upgrading skills. See: Want To Get Rich? Write Yourself A One Crore Cheque!

What does having a long-term view mean?

1. Investing without expectation of immediate returns;
2. Not focusing too much on discounts, cash-backs, reward points etc. They can give you some pleasure but your aim is happiness and contentment (NB: I did not say to avoid!)
3. Do nothing for at least one hour a day: literally nothing. This is when ideas are born
4. Optimize time. Time management makes up for (self-perceived) lack of genius or intellect! Time is real wealth.
5. Look at your investment once a year (just to see if it is still there!)
6. Do not add any more investments. There will be new products each month. Fear of missing out can destroy a portfolio. You should fear missing out on productivity, not products. You are already a momentum investor when you put money in Sensex or Nifty; You do not need a separate index fund for this 😉
7. Create a cash flow chart in Excel. in 2020, I can invest Rs. 5000 a month. In 2021 I will invest 10% more: Rs. 5500. by 2028 I should be investing more than Rs. 111,000. I should double my investment every seven years or less.
8. Track the investments made each month religiously (the investment made, not their value!)

Wish you all the best!