Why young workers should avoid large, rigid long-term investments


Tanmay is a 26 year old marketing professional who has been employed in a hotel business for three years. He was lucky to be given some good projects and was sent abroad over two years ago. It was at this time that he decided to buy an apartment because his allowances abroad were good. His idea was that it would be a forced economy. However, due to the challenges of the pandemic and its impact on the industry, his company decided to lay off some people in order to save on costs. Tanmay was looking for another job, but the opportunities in his industry are almost nil. He finds that he is unable to handle EMI payments. His other investments include a PPF account where he has contributed for the past three years and a few SIPs in equity funds. Tanmay plans to seek financial help from his father, but also wants to understand what he could have done differently.

Tanmay should realistically assess whether it is possible for him to continue with the home loan, given the uncertainty associated with his job. Getting out of real estate investing can be a good idea to relieve stress on your income. However, if he can meet his EMI obligations for a few more months before selling, he should. This will allow it to benefit from lower long-term capital gains taxes on assets held for at least three years.

He can take out a loan from his father, liquidate the mutual fund investments and take out a loan from the PPF account to generate the necessary funds. Any premium he generates on the sale of his apartment can be used to make investments suited to his current income profile. Tanmay made the mistake of committing to a large, long-term, inflexible investment before his income and savings stabilized.

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At this point in his career where there may still be uncertainty about income, Tanmay should only consider investments that can be made from realistic estimates of income and savings. Short-term income surges should be invested as they occur, not committed up front. Investments should be flexible to allow him to take a break from investing or even stop if there is a lack of income or savings. He should be able to do so without incurring penalties, cancellation or affecting the value of investments already made. In addition, if there is a need for funds to support its income, then it must be possible to easily liquidate the investment.

Going forward, he should assess whether the investments he is considering meet these essential characteristics until his income reaches a level of assurance that allows him to plan for long-term fixed obligations, such as a real estate investment. .

(The content on this page is courtesy of the Center for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava, and Labdhi Mehta.)


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