How to decide the best Asset Class for Young Investors
Out of the two broad asset classes—equity and debt, a young investor is usually recommended to invest in equity. This is because equity investments reap good returns for an investor with a long-term horizon. Since the young investors have age by their side, it is potentially the most suited asset class for their long-term goals. Equity investments particularly beat inflation, fetches more returns compared to other asset classes and staying invested for long time also reduces the risk.
However, a young investor can have short and medium term goals for which equity would not be a suitable investment avenue. Likewise, a young investor with a dependent family will be able to take relatively less risk compared to a young investor who is single and with no responsibilities. Thus, for such young investors—who have short-term goals and who are relatively risk averse-fixed investment or small saving avenues can be considered as an investment avenue. In other words, as per the responsibilities or needs of the investors, a young investor should chalk out his investment portfolio.
However, it is important to understand the mathematics of returns yielded by any kind of asset class before venturing into an investment. Therefore, a relative comparison of returns in different asset classes should be assessed carefully.