As you evolve, so should your investment strategy. Here’s how to navigate this tricky territory and emerge a winner.
It’s important to have savings so that you have something to fall back upon when things go south; however, for complete financial well being you need a sturdy investment portfolio as well. The biggest advantage of investing is multiplying your savings and creating wealth that will help you beat inflation. Think of savings and investments as a pair and you’ll understand how the duo works to help you tackle any situation that comes your way.
While investing early is key, investing smartly is equally important. You must definitely look at revising your portfolio each year, but simultaneously, you must also align your investment portfolio to cater to the milestones you’re crossing, one’s that are on the horizon and your changing financial responsibilities.
Take a look at how you can tailor your portfolio for the three main stages in life basis your age and income.
If You’re An Early Bird
Age group: 20–35 years
Investing during the early stages of your career can be very fruitful in the long run. The few thousand rupees that you put away each month can earn you significant returns in the coming 5 to 10 years, or in the long run when you retire. While the temptation to enjoy your salary will always be there, investing and saving each month will not only help you build discipline, but will also help you become financially independent.
Even if your salary seems insufficient, try to do the best you can. Cut back on expenses wherever possible to squirrel away a fixed amount each month. While you are likely to be enrolled for Employee Provident Fund through your company, don’t stop here. Choose investments that don’t require a lumpsum amount. SIPs for instance, are a great way to invest in mutual funds while controlling the risk. You can decide exactly how much you want to part with each month, and as your income increases, you can increase your contribution.
In fact, your early 20s are the best time to invest in high-risk investments such as stocks. This is because you have several years of employment ahead of you and the odd loss you incur now won’t matter in the larger scheme of things. Simultaneously, if you want to invest in long-term options, you can consider government bonds, ELSS and property with the help of a home loan as you inch closer to your 30s.
If You’re A Family Man/Woman
Age group: 35–45 years
Whether you are married, about to get married, starting a family or already have children, these are the most crucial years investment-wise. You are bound to have a higher salary, but also more expenses than you did in your 20s. Your financial responsibilities are also higher now so you must adopt a three-pronged approach.
First, ensure that your portfolio caters to your family’s future needs. Investing PPF, bonds and governments schemes such as Sukanya Samriddhi Yojana should be at the top of your list for your children’s future. Also include insurance under this head, for yourself, your spouse, your children and assets such as your home or car.
Secondly, use your portfolio to take care of the needs of your parents. This could be insurance, investing in real estate or non-cumulative fixed deposits and pension schemes that will give them a regular payout.
Lastly, invest for your own future. You have roughly 15–20 years to retire and taking calculated risks will allow you to build wealth for retirement smartly. Balance low-risk investments with stocks and other high-risk instruments after consulting with a financial consultant. Planning for retirement aggressively will ensure that your last working years are free from financial strain and that you’re able to maintain your lifestyle even when you’re no longer working.
If You’re Nearing Your Golden Years
Age group: 50 years onwards
Once you reach the big 5-0, it’s time to smarten up your portfolio. If you have any big purchases to make, maybe buying your dream car or a holiday home, now’s the time to do so. You still have about a decade ahead of you wherein you’ll be able to use your high salary to pay for such a landmark expense. Similarly, by the time you’re 55 years old, consider repaying your debt.
Then take on the task of reviewing, tweaking and perfecting your investment portfolio. As you close in on retirement, shift your investment corpus from high-risk to low-risk instruments. You don’t want to ruin the hard work that you have put in all your life, so it is best to consider avenues where your investment will be safe and grow steadily, even if it is at a slightly slower rate.
Increase your contribution towards fixed deposits while choosing to invest in tax-free bonds, National Saving Certificate (NSC), Fixed Maturity Plans (FMP), and similar safe options. You can also look into investing in real estate or rent a property you own to earn monthly rental income while holding on to an asset.
Choose from these approaches as per your age group and income to serve your present as well as your future. Apart from this, be sure to maintain a cash reserve for urgent needs that require access to liquid funds. This will allow you to tackle any bumps along the way without disturbing your carefully curated investment folio.
The writer is CEO, BankBazaar.com