Quora Answer: What is the Best Way for a 20-Something to Invest $10,000 to Build Wealth?

The following is my answer to a Quora question: “I am a 20-something who is just starting to work toward building wealth.  What is the best way to invest $10,000?”

I am assuming that this is a lump sum, as a starting point.  I am also assuming that you have the intention of outing aside funds out of your earnings, because $10,000 is not a lot to start with.  You can choose the pure investment route, or you can choose the insurance and investment route.  In the case of the former, you can consider speaking to a financial advisor on your investment horizon, your weightage between debt and equity instruments, and your initial investment.  The rest should be put in at regular intervals to take advantage of dollar cost averaging.

You should be putting money into index funds, mutual funds, or collective investment schemes, and spread them across markets, and economic sectors to spread your risk.  You should not be putting any funds into specific counters, because there is a higher risk involved, and you are just as likely to lose your seed investment capital, as make.

On the other hand, since you are young, and you are already planning for your retirement, I would suggest putting the money in an investment-linked plan.  There are several advantages here.  Firstly, since it is also an insurance plan as well as an investment plan, you have created an immediate estate.  And since you are still below 30 years of age, the mortality charges are negligible.

Secondly, the fund is liquid.  In the event that you have a need, the money is not locked up and you can withdraw from the fund.  This immediately makes it a lot more attractive than a fixed deposit, for example.

Thirdly, you are putting money in funds.  That means you can manage your own investments and have a direct involvement in its growth.  Since the approved funds of an investment plan all belong to the same category of risk or lower, that precludes you being over-leveraged and losing your investments.  Investment plans tend to be very well managed.  By themselves, they are quite capable of giving you at least 6% ROI pa, especially if you have a competent financial advisor.  This is the same as pure fund investment.