Age is just a number, is it not? Even clothing and eating habits change with age. So, why should your investments remain unchanged? Life’s goals and priorities vary for different age groups. One must choose appropriate investment instruments based on these targets. Here is some advice on how to plan your investments based on your current life-stage.
Young adult: Take risks
In your early twenties, you may have just started working. Your income is not high,and you do not have many responsibilities. This is the time to add equity to your kitty with proper guidance. You could consider a mutual fund to help you do this. As a safety measure, invest a part of your savings in low-risk investments. A fixed deposit is a good low-risk option. At this age, your expenses may be high. You do enjoy partying and hanging out with friends, but realising the importance of saving is essential. Even if your employer makes Employee Provident Fund (EPF) contributions, this is the time to start planning for retirement. You can do this through a Public Provident Fund (PPF) account.
Late twenties to early thirties: Diversify
By now, you may have moved up the organisational ladder. You have a decent and well-paying job. Does that leave you with more money for investment? No. Around this time,most young adults have settled down and started a family. If you bought a home, part of your salary goes towards the EMI. Your risk appetite reduces slightly compared to your early twenties. So, this is the perfect time to diversify your investment portfolio. Move some of the focus from equity to protection. You have a responsibility as a spouse and a parent. Importance of a life insurance increases if you are the sole bread-winner. You need to ensure that your family is taken care of, if anything happens to you. You must also get a health insurance that covers you and your family. Also, remember that this is the right time to buy insurance. The later you buy, the higher your premiums go. This is because you are fit when young. Hence, the insurance premium is lower. The more you delay getting insurance, the premium rises. Subscribe to a pension scheme as well. This can give you a regular income after you retire.
Late thirties to early forties: Maximise wealth
Your basic investments are in place. Your salary has increased as well. So, you have a substantial differential income in hand to invest. This is the time to focus on wealth maximisation. Increase the weight given to equity assets in your portfolio.You can do this through mutual funds and balanced funds. But, also diversify investments to mitigate the risks associated with equity. You would also need to upgrade your health insurance. Planning for retirement should begin with your first job and continue. Remember, you would need more financial security post retirement.You would have to make up for the loss of income. Apart from the regular pension scheme, also invest in a retirement plan that comes with an insurance cover. You, thus, get the dual-benefit of protection and pension.
The late forties to early fifties: Reduce risk
You are now approaching retirement. The focus of your investment portfolio needs to change completely. From high-risk investments, you must shift to low-risk ones. Fixed deposits, recurring deposits, government bonds, National Savings Certificates, and PPF should comprise amajor part of your portfolio. Being low-risk and short-term investments, these are perfect at this age. When you retire in a few years, you would need these funds. Reduce your long-term investments at this stage. It is likely that you now have a bigger and better property in your name. Check that your health insurance covers most of the possible health issues.See that it also offers regular health check-ups.
The golden years: Preserve wealth
This is the time to reap the fruits of the smart financial planning done in the earlier years of your life. Your investment goals now change to wealth preservation from wealth maximisation. Your risk appetite is at the lowest at this time. Health issues can arise any moment, and you would need cash for that. So, your investments have to be highly liquid. At this stage in life, use the wealth for yourself and your spouse, for recreation, and to take care of your health. Also, consider preparing a will. Ensure that your hard-earned wealth goes into right hands after your demise.
The bottom line
Thorough planning is necessary to create an investment portfolio. Having a life insurance policy ensures your family’s financial security in case of unforeseen events. It allows your family to cope with loss without worrying about finances.And you can easily rely on insurance companies like HDFC Life which offer a wide range of options from protection to investment, to health and retirement. You can find a suitable scheme from HDFC Life for all your financial planning needs. Remember, if your financial goals change with age, your financial plan should change too. So, prioritise your life goals and invest accordingly.
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Updated Date: Feb 21, 2017 12:57:43 IST