Alok Kumar, 24-year-old founder & CEO, StockDaddy, is a mechanical engineer from SRM University (Chennai). He proved that experiential learning produces the most capable innovative entrepreneurs. His passion for stock trading has helped him to establish a deemed unicorn in just three years of span. To date, StockDaddy has closed 3 investment rounds and it is all set to receive Series ‘A’ funding, too. And, by 2024, Alok Kumar is determined to onboard 5 million customers on StockDaddy App.
Stock market plays an important role in the Indian economy and it acts as a propeller for industrial growth because it enables companies to trade publicly and raise market capitalization. Also, the stock market is a significant source of income for millions of people in the country. In 2020, more than 70 lakh Indians have opened Demat accounts, which shows its phenomenal support to the economy. On the other hand, businesses raise capital through stocks and utilize it for growth and expansion activities. Apart from this, it can be a lucrative source of income for housewives, young women, and students who want to be financially independent.
It’s a common misconception of people in our country that once the hostel and college fees are paid by parents, students don’t require any kind of money at all. But, every student knows that on several occasions unplanned expenses come all of a sudden. Usually, students don’t want to put an extra financial burden on the shoulders of their parents and seek opportunities to earn while studying to meet their non-academic expenses.
In the above-mentioned scenario, there has always been an intriguing question for students interested in earning some extra money other than of parents’ support. The question is — what is the best time to start investing in the financial markets? Experts often claim that if you want to see the magic of the eighth wonder of the world “The power of compounding” then you should start it as early as possible. They believe that the size of the investment is not the only factor in the creation of your wealth but the consistency and the time you give to your money pay off with surprise returns. That’s why investors create wealth in the longer term, not in a day or week.
The power of compounding can be better understood with the below example.
Jackson started investing at the age of 20 years and contributed just Rs 24000 per annum whereas Tyson started investing at the age of 40 and contributed five times the amount contributed by Jackson which is Rs 120000 per annum at the same rate of interest for their retirement goals at the age of 65 years. Now, who would you think has a better ROI?
Let us analyse:
| Jackson | Tyson | |
| Amount Invested | 24000*45 = 10,80,000 | 120000*25 = 30,00,000 |
| Time Frame | 45 Years | 25 Years |
| Rate | 8%(p.a.) | 8%(p.a.) |
| Amount Accumulated | ₹92,76,134.82 | ₹87,72,712.79 |
So, as you can clearly see how the magic of compounding works if you let the time and money work for you.
Now, the youngsters who are in college can realize that by merely investing just Rs 2000 per month consistently with discipline, they can achieve these results, then think of a situation where they do the same thing consistently in equities or ETFs.
So, what is the best time to start investing? It is “NOW”. This is the most simple and actionable strategy, but here you need to take care of the 5 very important points discussed below.
- Invest in Blue-Chip stocks, the reliable companies present in the stock market for a long time.
- Never invest in one single company or sector, and always diversify your portfolio with conservative as well as innovative sectors.
- Try to invest more funds in large-cap (50% of funds) and remaining in mid-cap (30%) and small-cap (20%) companies.
- Always have some buffer money ready with you to accumulate more equities in scenarios of corrections (crashes) of more than 25 %.
- Start learning Technical and Fundamental Analysis today to be an intelligent investor tomorrow.
Now, an open question to all the college-going students; what is your plan now? And, do you still want to wait for the right time to invest, or willing to get richer, slowly and gradually. Being a student, time will work in your favour so if you have wealth creation goals start learning these skills today and start investing soon. Lastly, always keep this adage in mind “All wealth lies in the mind.” Indeed, having the right mindset is very important to generating wealth in the stock market and financial institutions.
Apart from having the right mindset, there are two more useful suggestions that every investor must follow irrespective of his/her profession. Managing money skillfully and taking informed decisions are the indispensable rules of earning through making investments. In the real world, traders don’t lose money because of their low accuracy ratios, most of the traders and investors lose money because they fail to understand the importance of proper money management skills. There should be clarity on how much money you can risk per trade or investment, how to divide portfolio in different market capitalizations, and how much money you need to have in a buffer to be ready to put it in short term correction opportunities.
And, the next most cardinal advice for investors is to make decisions after thorough research in the stocks they are going to invest in. So, never invest your money if you do not understand the elementary concepts. The stock market can provide big profits if you are well-informed about the market practices and the company in which you are planning to invest. Proper research should always be undertaken before investing in stocks. Knowing the industry can assist you in making informed judgments that will benefit you in the long term. Another thumb rule is — never invest in a stock, invest in a business instead you understand.
Last, but not least. Every top trader or investor happens to be a lifelong learner as they add new skills and learn from their mistakes by keeping a journal of their decisions and experiences. So, always keep on updating your knowledge and skills about the stock market because just like any other technical skills, they also need to be groomed constantly. Of course, to keep yourself ahead and have an edge in the market, you must be updated with the latest trends and practices.