5 Investment Rules That Millennials Can Follow to Boost Portfolio Returns

May 16, 2022

Listen to 5 Investment Rules That Millennials Can Follow to Boost Portfolio Returns

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In today's fast-paced world, instant gratification is quite important for millennials. Taking out money for investments is not easy for millennials when societal criticism and peer pressure trap you into spending more than you save for tomorrow. However, this is the best age to start planning for financial security, and, therefore, you must invest your money more diligently.

The millennial generation is tech-savvy and prefers fintech apps and online portals for investing. Furthermore, digital content creators with a strong background in finance in terms of education and experience enticed the youth to invest more and manage their personal finances. Millennials are shunning traditional investment strategies in favour of digital alternatives like AIFs, Mutual funds, and Cryptocurrency. To safeguard their financial future, millennials must make wise investments depending on their risk appetite and investment horizon.

When talking about investments, mutual funds are perhaps the best option, even if you are a beginner. Mutual funds can be used to save for both short and long-term goals. They provide you with a diverse portfolio, consistent returns, liquidity, and low costs. Millennials can easily start an SIP in mutual funds with as low as Rs 500 due to investment convenience and low ticket size.

However, what often bothers millennials is how to get the best returns out of their investments?

Well, there are a handful of timeless investing tips and rules to maximise your portfolio returns. Millennial investors can follow these investment rules to enhance their portfolio performance:

1. SIP into mutual funds

Millennials, unlike earlier generations, do not believe in accumulating assets solely through passive investments. They want to take a more proactive approach to increase their wealth. It's no surprise that mutual funds, which are potentially rewarding financial vehicles, are growing increasingly popular with this demographic. Despite the soaring awareness about mutual funds, several millennials are still on the fence about whether or not to invest.

In mutual funds, millennials can easily invest via SIP mode with the goal of long-term financial appreciation. With SIP, you don't need a lumpsum to start investing and you can start with an amount as small as Rs.500 a month to slowly yet steadily grow your wealth. SIPs are a wonderful investment tool, and it is most suited for millennials who are delaying their investment plans.

SIP in Mutual funds work with the magic of compounding and when you stay invested for a long term, your money could have a substantial growth. This is the reason why SIP into mutual funds is deemed as a safer and more suitable option for beginners, like millennials.

5 Investment Rules That Millennials Can Follow to Boost Portfolio Returns
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2. Stay put when markets appear volatile

Markets are particularly volatile in the current climate, characterised by inflationary pressures and recent geopolitical tensions between Russia and Ukraine. The influence on portfolio returns is a major issue for many investors.

On the other hand, Millennials have ease of access to market information due to fintech apps and online investing portals. However, it may contain inaccurate information, leading to risky investment decisions that could harm your portfolio's returns.

Redeeming your investments due to colossal market volatility is not a good decision, as such premature ill-timed exit could impact the portfolio returns significantly as it fails to get the benefit of lower average costs. Stopping SIPs during turbulent times is against the basic fundamental of starting SIPs, which is majorly long-term investment. Stay put and continue investing in your Systematic Investment Plans (SIPs).

When the market falls, SIPs benefit because investors who invest the same amount get additional units. SIP investors should rejoice that a correction has occurred because they can now purchase more MF units via SIP. SIP investments, according to experts, performed better in down cycles and sideways markets. A sideways market happens when investment prices remain in a narrow range for an extended period of time.

As a result, ongoing SIPs will help you balance your average cost of investing in a sideways market, while also reaping the benefits of long-term averaging. Thus, apply your asset allocation plan intelligently and increase your SIP investment according to your financial objectives.

 

3. Avoid redeeming from the best mutual schemes

At the initial investment stage, millennials tend to panic that their investment in mutual funds will not be profitable due to the several market fall they have witnessed until now. There have been several market fall in the past, but there is always a recovery post the fall.

Market fluctuations are part of the investment journey, and as an investor, you must avoid hasty decisions. During a market crisis, investor sentiment panics, and there is a certain amount of redemption pressure. Many investors succumb to herd mentality, which has a negative impact on their portfolio outcomes. Stay calm and do not panic because it impairs your ability to think rationally and leads to dubious investment decisions. So, to avoid panic while investing, millennials can do several things.

Let's start with being diligent in finding out information and evaluating mutual funds in your portfolio on various qualitative and quantitative parameters before taking any decision to redeem. Thus, it is important to keep emotions aside and stay calm and not redeem your investments in panic. It is also essential not to go overboard with investing.

 

4. Keep diversifying, but don't over-diversify

Your investments should be tailored to your risk profile, investment horizon, and objectives. A well-diversified portfolio with assets in several asset classes that produce good returns during various market phases should be your goal. In simple words, you need to have a prudent investment approach towards your investments in several financial products and not simply go for any suggestion or advice from your friends or relatives.

Diversification is the key to boosting your portfolio returns. As no two asset classes perform in the same direction, building a diversified portfolio incorporating multiple asset classes is the best way to generate optimum risk-adjusted returns from various asset classes. While it is true that fund selection and asset allocation should be based on your investing horizon, financial goals, and risk appetite, too much diversification should be avoided.

5. Conduct a periodic review

A periodic review can also assist you in determining whether you're sticking to your asset allocation plan. Make sure you examine your portfolio and financial goals on a regular basis to adjust your portfolio in response to market movements, risk appetite, age, and goals.

Without regular tune-ups, your portfolio might become too aggressive or conservative for your risk profile, which can decrease the likelihood of you reaching your goals. For example, if equities are having a good year, your portfolio's value would probably grow to reflect a larger value of equities. Similarly, if equities are floundering, your portfolio's value may shift to safer assets such as government bonds.

Since millennials have a long-term investment approach, a periodic review of your investments allows you to adjust your investments when the market is volatile, based on your risk appetite and prevailing market conditions. This keeps your funds active as per the current market circumstances, which adds to a decent return to your overall portfolio throughout the entire investment tenure.

Properly managing your investments and making worthy financial decisions takes time, skill, and ongoing effort; it is not a one-time thing. Millennials, however, lack adequate financial knowledge and make decisions based on random market information they receive without analysing the actual market scenario. As a result, millennials are more likely to make common investing mistakes that have a detrimental influence on their portfolio returns.

Therefore, millennials should work on enhancing their financial knowledge to comprehend the above-mentioned investment rules. It is essential to draw up worthy investment strategies and make an informed investment decision to create a robust investment portfolio that you would be able to provide significant returns in the long run.

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Warm Regards,
Mitali Dhoke
Jr. Research Analyst



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