Here's how young investors can build wealth in the stock market

The stock market is the barometer of a country’s economy. India is the fastest-growing major economy in the world offering a host of opportunities for long-term investors to create wealth by being a part of this journey. It is widely perceived that the future decade belongs to India. The stock market holds a multitude of opportunities for young traders and investors looking to build their wealth and secure their financial future. With its dynamic nature and potential for significant returns, the stock market has become an attractive avenue for those willing to take calculated risks. Speaking to Bizz Buzz exclusively, Sandeep Jain, MD -Trans Scan Securities Pvt Ltd and Chairman - ANMI EIRC, explains what stock market has to offer to a young investor or trader.

Do you think some of the recent government scheme throws up good opportunities for young investors to tap the stock market and accumulate wealth?

The Government of India has declared a lot of attractive benefits for manufacturing goods in India by way of PLI schemes etc. A lot of global MNC giants have already set up their manufacturing facilities in India and many more are in the pipeline. Hence, in a long-term view, a lot of investment opportunities are there in this sector. Investing in the stock market at a young age allows for long-term wealth accumulation. The power of compounding enables investments to grow exponentially over time. By starting early, young investors have more time to weather market fluctuations and potentially benefit from the long-term upward trend of the stock market. Fundamentally, good companies are always on the radar of long-term investors.

What is your take on diversifying portfolios? Does it help?

The stock market provides access to a wide range of investment opportunities across various sectors and industries. Young investors can diversify their portfolios by investing in different stocks, exchange-traded funds (ETFs), or mutual funds. Diversification helps spread risk and can enhance potential returns. Those who can’t devote enough time can easily participate in the growth story through investments in ETFs or Index based funds.

How important is investment education, particularly for an young investor?

Engaging in stock market investing at a young age offers valuable educational opportunities. Young investors can learn about financial markets, company analysis, and economic trends. This knowledge can provide a solid foundation for making informed investment decisions and financial planning throughout their lives. Investors also get to learn about the business models of the investee company by studying their annual reports, and websites and attending the con calls. This helps them to build their business acumen and understand the business cycles as well.

There is this concept of partial ownership……

Yes, yes. That’s very important. By investing in stocks, young investors become partial owners of companies they invest in. So just by being a small shareholder also we get the opportunity to participate in the growth story of a company. So, no need to have a big capital to start with. This ownership can provide a sense of involvement and participation in the business world. As shareholders, they may also have the opportunity to vote on company matters and receive dividends, if applicable.

Does stock market also spark an entrepreneurial spirit in young minds?

You are absolutely right. The stock market often sparks an entrepreneurial spirit. Young investors may be inspired by successful companies and innovative ideas, motivating them to explore entrepreneurial endeavours themselves. Stock market investing can serve as a gateway to understanding business dynamics and nurturing entrepreneurial aspirations. On the other hand, for those looking for diversification and exposure to broader market trends, ETFs and mutual funds can be suitable choices. These investment vehicles pool funds from multiple investors to invest in a diversified portfolio of stocks, bonds, or other assets. This diversification minimizes individual stock risks and allows young traders and investors to gain exposure to multiple sectors or asset classes without needing a large capital base.

Additionally, options trading presents an avenue for young traders to hedge their risks, leverage their market knowledge and take advantage of price movements. Options provide the flexibility to speculate on future stock price movements or protect existing stock positions, enabling young traders to employ advanced trading strategies. A lot of options-related tools are available which provide ready-made strategies to take exposure in markets with a defined risk involved therein. But it should be noted that it’s a leveraged product which carries high risk also.

What about building a ‘Passive Income Stream’?

The stock market can actually serve as a platform for young traders and investors to build a passive income stream. Dividend-paying stocks provide an opportunity to earn a regular income, as companies distribute a portion of their profits to shareholders.

By carefully selecting dividend-paying stocks with a history of consistent or growing dividends, young investors can build a portfolio that generates a steady stream of passive income.

Furthermore, the stock market offers the potential for capital gains through price appreciation. As the value of stocks increases over time, young traders and investors can realize profits by selling their holdings. These gains can be reinvested or used to fund other financial goals, providing a pathway to financial independence.

How can a young investor achieve financial independence and other long term goals, investing in the stock market?

There is no doubt whatsoever that investing in the stock market can help young individuals work towards financial independence and achieve their long-term goals. Whether it's saving for a down payment on a house, funding higher education, or building a retirement nest, the potential returns from the stock market can contribute significantly to achieving these objectives in the long term. However, it is crucial to approach the market with caution, employ sound investment strategies, and maintain a long-term perspective.

With proper research, discipline, and patience, the stock market can be a rewarding avenue for young traders and investors to secure their financial futures and achieve their goals. Investors should carefully assess their risk tolerance as investment or trading in stock markets carries a lot of risks too.

It is always better to consult a SEBI-registered advisor in this regard.