Gen Z, millennials strike a balance in living for today and saving for tomorrow

It’s important to invest in equities if you wish to beat inflation in the long term and walk towards your financial goals. But don’t forget the important part that debt investments play in your portfolio.

Once you have a list of primary goals that you are investing in, choosing the right instruments becomes a little simpler.

Gen Z and young millennials for the most part believe in living in the moment without necessarily worrying about the future. Counterintuitive, as it may seem, to be able to live a life without care, needs considerable preparation. But what if you could have your cake and eat it too?

Geopolitical upheavals and economic volatilities have made it essential that we protect the value of our money today and ensure it grows for a better tomorrow. But that does not mean you have to stop living today. The key is to have a well-rounded investment strategy that allows you to enjoy your present while also securing your future.

Where does one start? It has been established that the sooner you start investing, the bigger your corpus, simply because of the sheer number of years on your side and the power of compounding. Ensure you've crafted a detailed roadmap for your goals before you begin.

Invest in your goals

All of us have goals whether they are short-term, medium-term, or long-term. Post-graduate programs, international trips, gaming software upgrades, a pet, perhaps even marriage, children, and a home. And these goals are fulfilled, in part, by money. Just as you value your independence and work-life balance, wouldn’t it be great to be able to meet your goals when you want to as opposed to when you have the resources for it? Aligning your goals to your investment strategy is also a good way to fight the temptation of discontinuing because it would also mean withdrawing your commitment to a goal.

Once you have a list of primary goals that you are investing in, choosing the right instruments becomes a little simpler. Choose a carefully crafted option that balances return, risk, and duration of investment. For your short-term to medium-term goals fixed income investments can be great, whereas for long-term equity, gold, and real estate can be considered.

Also read | Mastering your finances: Financial lessons for Gen Z and Millennial Moms

Plan for emergencies

Much as living in the moment is desirable, it is prudent to be prepared for emergencies. None of us want the worst to happen, but if it does, we need to be ready, so setting up an emergency fund is non-negotiable. At any given point in time, you should keep aside 6 months of expenses as an emergency fund. Equally crucial to having an emergency fund is refraining from using it for the smallest inconvenience, setting very strict rules about the circumstances in which you will break open your emergency fund and stick to them.

Leverage SIPs to bring discipline

Investing through Systematic Investment Plans (SIPs) helps bring discipline and rigour to your investment strategy because it ensures that you put in a fixed amount of money every month throughout the year. You should look to put aside at least 10 percent of your monthly income in SIPs. By combining both index funds and equity-based MFs, you can benefit from the low-cost, broad market exposure of index funds while also potentially capitalising on the expertise of fund managers through equity-based MFs. You must aim to increase your SIP contributions each year with increasing income and growing goals.

Insure yourself and your loved ones

Just like emergencies, we do not want life’s uncertainties to bring bad news, especially for loved ones. Life and medical insurance policies are your best bet to safeguard against them. The younger you are, the lower your insurance premium. Financial experts often recommend purchasing at least 10 times your annual income in life insurance coverage, although your personal number may be higher or lower. When choosing health insurance policies, focus on diseases covered and claim settlement track records.

Also read | Want to take out a life insurance policy? Here are the different types of term plans on offer

Do not forget fixed income while chasing equities

Fixed-income opportunities are a great addition to your portfolio, especially for preserving capital through strategic investments while earning a steady return. Alongside equity investments that may bring in high yields, fixed-income investments ensure stability. Investing in alternative fixed-income opportunities has become a breeze today, so take your pick. There are numerous options available within alternative fixed-income opportunities, such as bonds and real estate debts to diversify within the segment. It is advisable to have 15 -20 percent of your portfolio in alternative fixed-income instruments.

But going for alternate fixed-income investments can also bring in unnecessary risk. Use debt or fixed-income investments to bring stability in your portfolio. But avoid using fixed-income instruments to earn a returns kicker, such as investing in high-yield (low-rated credit) instruments.

Review your portfolio periodically

Nothing in life is constant and recalibration is the only way forward. So, while your larger goals do not change overnight, it is a good idea to map your goals against investments on a periodic basis, say annually, and adjust. You may have another goal on the horizon, a few goals may be closer to fruition; some investment strategies may have brought in exceptional results while others may have performed below expectations. This would be the time to take a calculated view of your portfolio and reallocate based on priorities.

The strategies mentioned in this article should help you beat the inertia that typically accompanies the beginning of any seemingly daunting task. Remember that by investing in your goals, you are investing in yourself, and your dreams and it is never too soon to that first step.

Source: Moneycontrol‍