Hi I am 20 years old from Delhi. I have earned around 2.5 crore by doing Remote jobs in Software engineering field and trading in stock market. Now I want to invest this entire amount of money in real estate and mutual funds for long term prospective around 15-20 years down the line. I can high risk now. But I want highest amount of return. So should either go for small cap funds or should diversified my portfolio in mid and small cap.
Ans: Congratulations on your impressive achievement, building a Rs. 2.5 crore corpus at 20 years old is fantastic! Let's discuss how to invest for the long term while managing risk.
Real Estate vs. Mutual Funds:
Real Estate: While real estate can be a good investment, it requires significant upfront capital, ongoing maintenance, and may have lower liquidity compared to mutual funds.
Mutual Funds: Offer diversification, professional management, and potentially high returns, especially with a 15-20 year horizon.
Considering Your Risk Tolerance:
High Risk, High Return: You're open to high risk for potentially high returns. This aligns well with your long-term investment horizon.
Building a Diversified Portfolio:
Don't Put All Eggs in One Basket: Spreading your money across asset classes (equity, debt) and within equity (large, mid, small cap) helps manage risk.
Actively Managed Funds: Since you're comfortable with high risk, actively managed funds with experienced professionals picking stocks could be suitable. Actively managed funds come with higher fees compared to passively managed funds.
Here's a Potential Portfolio Structure:
40% Large-Cap Funds: Provide a stable base and good growth potential.
30% Mid-Cap Funds: Offer higher growth potential than large-cap funds but with more risk.
30% Small-Cap Funds: Have the potential for the highest returns but also come with the highest risk.
Review and Rebalance:
Market Conditions Change: Periodically review your portfolio and rebalance as needed to maintain your target asset allocation.
Professional Guidance: A Certified Financial Planner (CFP) can help you design a personalized investment plan that considers your risk tolerance, goals, and tax implications. They can also recommend specific actively managed funds based on your risk profile.
Remember: Past performance is not a guarantee of future results. The stock market has inherent risks. Don't invest money you can't afford to lose.
Building wealth at your age is a smart move! A CFP can guide you in creating a diversified portfolio using actively managed funds to aim for high returns while managing risk.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
