Road To Investing In 2022
In the next few years, we will see incredible interest from millions of new investors wanting to learn the language of investing and sharpen their investing skills
Personal finance and investing are now mainstream. The "rise of the retail investor" is trending in India and covered almost daily. It is safe to say that a new generation of investors has officially arrived. They are young, have access to information via Instagram, YouTube, Podcasts, Influencers, and are armed with tools that make the stock market more accessible than ever. With the presence of several trading apps (and incredible marketing budgets), access to personal finance is truly democratized.
Social media has heightened exposure to global investing culture. India's startup ecosystem and equity markets are roaring. It is common to find an aspirational 20-year-old aiming to build a sizable portfolio before retiring at 45. In the next few years, we will see incredible interest from millions of new investors wanting to learn the language of investing and sharpen their investing skills.
How to play it smart?
We all know that investing pundits recommend that investors build a diversified portfolio consisting of equities, bonds, real estate, gold, and even crypto. Pundits recommend younger investors to focus on assets like equities and potentially crypto given their age and risk appetite while older investors should be more conservative as they are closer to retirement.
In the equity bucket, investors with the appetite to do their own homework can elect to own individual stocks while ETFs and mutual funds are great for beginners seeking broad market exposure. Also, Indian investors should strongly consider access to US markets to diversify their portfolio and gain access to their favorite global brands like Amazon, Google, Nike, Starbucks, etc.
Even in a diversified portfolio, there can be room for higher growth investments that will be more volatile than the blue-chips. My personal favorite trends to watch are cloud, e-commerce, crypto and fintech.
Key elements of a diversified portfolio
Indian equities have been on a tear. They've outperformed both their Emerging Market (EM) peers and US markets. The gains were led by favorable policy support, sharp post-pandemic rebound, and steady inflows from retail investors. Several consumer internet companies like Zomato, Nykaa and Paytm went public, widening the market base which was dominated by old economy stocks like Banks, FMCG and cyclical.
Investing in US equities should also be considered. Investors can access top global companies like Apple, Amazon, and Tesla and key disruptive trends like AI/ML, electric vehicles, and social media. Adding global exposure to your portfolio can also diversify macroeconomic risk. For most Indians, buying US stocks via a "passive" strategy using locally available mutual funds and ETFs makes the most sense. For those interested in individual US stocks, numerous Indian platforms can ease the access.
Crypto is the other category to consider. A recent analysis by Chainalysis ranked India 2nd globally for crypto adoption. Crypto investments in India have jumped from $200 million to $40 billion in the past year. India, with its 15+ million crypto investors, is on track to bypass the US. Majority of this growth is driven by millennials living outside the largest cities. Besides aggressive returns, new investors want to be early to Web 3.0. The crypto ecosystem is still in its early days and risks remain, but one thing is for sure - an incredible amount of talent and capital is entering the sector.
How to learn to invest?
Retail investors have looked like experienced veterans over the past few years. But, it won't always be this easy. Investing is hard and markets are constantly evolving. The sheer speed and volume of information is perhaps the most intimidating problem impacting investors of all skill levels. There is a constant urge to check your portfolio, FOMO on the next IPO or meme coin, or your friends bragging about multi-baggers. It is easy to be a "long-term investor" until you see scary media headlines coupled with a sinking portfolio. On top of all that, there is no "one-size fits all" way to learn investing. A long-term mindset including concepts of mentorship and apprenticeship should be applied by anyone wanting to learn.
To become a well-rounded investor, one needs to understand finance, valuation, business and industry, and macroeconomics. Very few people (even veterans) have deep knowledge in each area. Seasoned investors or credible influencers with a knack for explaining complex concepts in layman terms are your best option. New investors should seek out such mentors.
When starting your investment journey, starting small is more important than starting big. Once investors have "skin in the game", it pushes them to think very differently about markets and companies. Lastly, nothing can replace market experience. Even the savviest investors are continuously trying to sharpen their understanding of market psychology.
Social finance = Community-based learning
Conceptually, social finance is not new in India. We're all constantly chatting with friends on social platforms about the metaverse, trending cryptos or the latest IPO. This has coincided with the rise of "Fin-Fluencers", or influencers who teach investing concepts on social media platforms.
Fin-fluencers have done a great job at making investing less intimidating for young investors. But, on the other hand, some bad actors have led to the rise of the "stock tip" culture. That's why finding a community of like-minded investors wanting to learn together is the most efficient way to sharpen your investing skills.
To support retail investors, investment platforms will play an integral role in democratizing investing knowledge by providing a transparent and centralized platform that welcomes fin-fluencers and investors of all types (e.g. beginners, traders, experts) who are passionate about empowering India's next generation of investors.