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How should a 19-year-old making close to 200k a year invest/manage their money?


This is a big question so it will take a big answer. I’ve broken down my answer into sections to help you navigate and jump to any sections that are of particular interest.

1. Get a financial advice

2. Investing for income, growth or both?

3. Different asset classes for investment

1. Get a financial advice:

The first thing I would suggest is to seek independent financial advice as your wider personal and financial circumstances need to be taken into consideration before you do anything. For example, how old are you? Are you a high rate income tax payer? Are you married? If so you may want to put investments in your wife’s name if she is a non-tax payer? Do you have outstanding debts? How much do you earn? Are you investing for income or capital growth, or both? What is your attitude to risk? What is your investment timescale and do you need access to the capital?

If you don’t already have one, you can contact one of our recommended financial advisers. Of course I can only give generic information about investing but I want to give you some idea of your options.

2. Investing for income, growth or both?

As stated earlier, your personal circumstances will also determine where and how you invest along with your investment objective.

Broadly speaking investment objectives fall into one of 3 categories:-

a) investing for income

b) investing for growth and

c) a combination of the two

If you need to draw an income from your investments then those that will meet your objective most effectively will be income generating assets. This can include rental yield from property, dividends from company shares with good dividend payment histories, coupons from bonds, interest from cash deposits etc. The key is that if you are truly focused on generating income then you may need to accept fluctuations in the capital sum invested, especially if you take on more investment risk in search of a greater level of income.

If you are investing for growth generally speaking this can involve a greater level of risk as investors are focused on the long term return before needing to draw on their investments, giving time for the value of the investments to recover from any market downturns. By way of example a company which historically hasn’t paid dividends, instead reinvesting any cash in expanding the business hopefully rewarding investors through appreciation of its share price; would be classed as a growth investment.

Of course the third option is a combination of investing for income and growth where your investment portfolio would have a combination of such assets. But as you can see a certain type of asset can fit into both categories – it largely depends on the actual asset held. For example shares (equities) can be income producing (good dividend payers) or growth as described. But the power of compounding income (i.e. the income generated being used to buy more of the asset rather than being spent by the investor) can lead to significant investment returns in the long term. In fact, it has been shown that the majority of stock market returns come from reinvesting dividends.

4. Different asset classes:

Your investment objective and attitude to risk will help determine which assets are suitable.

While there is no standard list or category of asset classes, widely it’s accepted that there are 5 types of asset classes namely

  • Fixed Income
  • Equity
  • Real Estate
  • Commodities
  • Cash

Asset Class #1 – FIXED INCOME

Let’s start with the most famous and favorite asset class of India, which is “Fixed Income”. Fixed Income asset class refers to the class of financial products where your investment amount is more of less protected and the returns are either fixed or predictable to a great extent. There is almost no/less risk in these products which are from fixed income asset class.

Investing in fixed income asset class is like lending your money to someone with assurance of return with predefined returns. So when you make a fixed deposit in a bank, you are not exactly “investing”, but lending your money to the bank with a promise that they will return back your principle amount along with a pre-defined interest.

“Fixed Deposits do not beat inflation”

Even if you are getting 8-9% return on your fixed deposits, many people do not realize that it’s the pre-tax return. As Fixed deposits are taxable (and every other debt instrument), once you pay the tax on the returns, the post tax returns are only in range of 6-7% and if you adjust the inflation of 8-10%, you are actually getting a negative return on your fixed income investments.

Asset Class #2 – Equity

Equity asset class is an interesting asset class and slowly getting more and more acceptance from last 1-2 decades.

“Equity means ownership”

So when you invest in equity, it means that you have bought ownership into a business. For example, when you buy stocks of Infosys or Reliance, you become a small owner of that business.

If you look at all the rich people today (really filthy rich), it all happened with equity investor. Someone either opened their own company or invested in some company which was growing and held it over long term.

Equity Investing works in long run

Below is the 10 yrs return chart for various years for sensex. You can see that most of the times sensex has given more than 12% return (much more than that actually) every 4/5 times. This is since the time sensex has been into existence.

Because the equity returns are very volatile, most of the people refrain from mutual funds investment or investing into direct stocks, but they are the real wealth builders for any investors.

However we have a better investment option which gives an advantage of equity exposure but unlike mutual funds it rules out the higher entry and exit load on your investment.

To know more visit: The thematic investing

Asset Class #3 – Real Estate

Real estate, as we all know refers to physical space, or physical structure like land, residential flats, commercial spaces etc. These spaces are either used for living purpose or for doing the business and generate income. Should one invest in real estate or not is a topic of debate and I am not getting into that right now.

Below are the real estate returns in various Indian cities from 2007-2014:

Asset Class #4 – Commodities

Commodities refer to various types of physical goods or products which we all can buy and sell for various uses. Gold, Silver, Copper, Rice, and Oil etc will be counted under this asset class. The price of these products depend on demand and supply in the market.

Commodities are for “Trading” and not investing

With my limited understanding, I came to the conclusion that commodities are not for investing for long term, but mainly for trading, where you can benefit of the market cycles and predict demand and supply moves and get a profit or loss.

Asset Class #5 – Cash

When I say “cash”, I don’t just mean the hard cash bundles, but also the money lying in your saving bank account, or liquid mutual funds. I will refer all of these things as “Cash”.

The freedom you get with cash is very high and that’s one reason why most of the people prefer to hold a lot of cash. Also the cash cannot be tracked (unless it’s several multi crore rupees) and many people keep their black money in form of cash.

It’s not uncommon to see many lakhs lying in a saving bank account just because the investor thinks “What if something goes wrong?”

However cash has one problem, it does not fight inflation at all or very little. The money lying in saving bank account just earns 4% and that does not help you as an investor.

Which asset class you should invest into?

Where should you invest your money? This question can only be answered if you are clear about your requirements like how much risk can you take and how much return do you expect out of your investment?

Are you ok with locking your money for several years or not? I have made a simple table which compares all asset classes on various parameters.

I hope this helps 🙂