Investing For Millennials

Rishabh Parakh is a man who wears many hats. Not only is he an accomplished Personal Finance Strategist as well as the Founder and ‘Chief Gardner’ at Money Plant Consultancy but he is also a regular contributor to some of the top economic publications in the country. Rishabh has now also become an author of a bestselling new book called ‘Financial Spirituality’, targeted at millennials. Corporate Citizen sits down with Rishabh for a quick chat about his new book, the state of the economy and why youngsters should start investing as soon as possible

There are quite a few financial advice books available, but your book is possibly the first targeted at millennials. What made you think of writing a book targeted at millennials?

When it comes to financial planning, most of us start very late. And time is of the essence to make sure the magic of compounding plays in your favour. This is the reason why I wanted to write a book targeted at millennials. This is the perfect time to help someone who is starting off with their careers. They have time on their hands, their entire financial life is in front of them. If we can help them plan and formulate their financial life now, they will thank us for it later. In addition to this, millennials can still absorb some risk in terms of investing by virtue of their age. This will help them get handsome returns on their investments provided they do it right.

Millennials are known for their short attention span. How difficult, then, is writing a book that holds their attention?

The generation of millennials can be called the DIY generation who loves acquiring knowledge and doing a lot of things on their own in their own way. The millennials are also quite a unique generation as compared to their parents who had to struggle more than them, and for sure, their next generation will struggle less than them. They seek a quality of life more than any other generation and that is where handling personal finance becomes quite challenging because it is very subjective. So, given all these parameters and their short attention span, it became quite a task to write a book which holds their attention and make them take action than just gyaan.

So, I have attempted to talk to them as their friend and be a part of their financial journey with them. While being a part of it, I have tried to help them as a friend. I hope this understanding and empathy reflects in the book and holds their attention.

Indians generally are very risk-averse. They prefer to save rather than invest. But at a time when traditional saving instruments are yielding lower returns, is investing now becoming more and more essential?

Yes, because, today, the problem statement has changed, we have excess information rather than lack of information. The problem we have is with being able to make sense of this information in a manner that we can use it. For millennials, it’s important to provide that perspective.

We are used to safe investment products like gold, real estate and fixed deposits. However, in today’s world, they are no longer the options they used to be. The returns we get on those are barely able to beat inflation if they do. This means that you are at best maintaining your purchasing power by investing in these avenues. Hence it is important to start investing in avenues like equity which will give returns that can beat inflation.

If you look at the history of the market, you will find that it has gone through many ups and downs. However, these ups and downs are always temporary, this is the very nature of the stock market

How soon should younger generations start to invest?

As soon as they start earning, and this is the biggest advice I would give them, to start investing early, howsoever small it is. This is something which not only me but any prudent financial advisor or any senior person would give, I have also spoken about this in the book as well. In the initial stages, what is important is not the amount but the habit. If you can build the habit of investing early, then you can be on the right track for your long term financial planning. For this, it’s okay even if you start with an amount as low as Rs.500 per month wherever you can, in any product. As time goes on, you will understand the amount and the products needed to achieve your financial goals, and then you can start building your financial strategy around it.

Do you feel the current slowdown in the economy increases the risk of investing?

If you look at the history of the market, you will find that it has gone through many ups and downs. However, these ups and downs are always temporary, this is the very nature of the stock market. An investor does not need to be affected by it. As long as your financial goals are still the same, maintain your investments as they are. Since its inception, the Sensex has given a CAGR of 16%. This takes into account every slowdown and market crash that we have had. In the long run, the market should give good returns. At the same time, this does not mean you continue to invest blindly. Do your research, comprehensive financial planning, and then invest. In every market change, you need to assess the situation and reallocate your investments if needed. That is how you can stay on top and come out a winner in the long run. Always remember the most basic and important thing that every investor should follow is to do a thorough analysis of their risk profile, financial goals and basis that create an ideal asset allocation. Selecting which financial products to invest in will be very easy then. Follow the Plan | Protect | Play, which is our core philosophy at Money Plant Consultancy that I have also talked about in my book “Financial Spirituality”. Once you understand your score and where do you stand in terms of your plan, protect and play stage, investing will become much easier than what it looks like. So develop your financial plan bringing into account these three points.

The most important advice I wish I had known when I was young was to start investing early. This same thought is also shared by a lot of my senior clients. Start early and then you can fulfil all your dreams sooner

What advice would you give to youngsters which you wish someone had given you when you were younger?

The most important advice I wish I had known when I was young was to start investing early. This same thought is also shared by a lot of my senior clients. All of them believe that if they knew then what they know now, they would have started investing long ago and their financial planning would be in much better shape right now. This is exactly what I would tell youngsters now. Start early and then you can fulfil all your dreams sooner. The second most important thing is I wish that I had more knowledge about asset allocation. Because for a young investor in their 20s, the chances of having immediate liabilities are far lower, and most of them would be in a position to invest in products generating higher returns to beat inflation and also create wealth in the long term. The true objective of asset allocation strategy is to get a return on investments while still managing the risk inherent in any investment option. And the third important advice I wish I should have received is planning investments for specific goals which is a key part of your financial strategy. A simple categorisation for your goals could be long term goals and short term, which will decide the investment tools you use along with other factors like your risk appetite. The key is to focus on the basic goals first and then go for other goals like luxury purchases if your financial planning permits that. But those times were different and this is a different era as I had said earlier, so let us use the experience of earlier times coupled with new age technology to make financial planning more fun than serious stuff yet with an eye on building a portfolio of a life-time which works under all conditions.