Are you in your 20s looking to earn from a possibly low income? Or are you in your 30s or 40s looking to bolster your financial life further? Whatever life stage you may be at, you all need to maintain financial discipline to meet your life goals. The investment avenues may differ but not the financial discipline. With discipline, we mean regular investments in the best asset class. Let’s check out the asset class you should look at different lifecycle stages.
Factors That Dictate Your Investment Choice at Different Lifecycle Stages
It boils down to your income, financial goals, risk appetite, family obligations and the investment horizon.
The salary you receive is a big factor in deciding the extent of investment you can make across asset classes.
Financial goals can be both short and long-term. Short-term goals can be like paying the school or college admission fee in a year, buying AC, fridge, iPhone or other consumer durables. Whereas long-term goals will likely be a wedding, higher studies for children and retirement.
Depending on the goals, the choice of investment will differ.
Risk appetite means the ability to take risks. It also represents the extent of risk one can afford at different lifecycle stages.
The investment horizon denotes the time one can spare for investments.
Family obligations like paying for kids’ tuition fee, loan EMIs (If Any), food, travel and accommodation expenses also influence the investment choice.
Investment Avenues to Choose from During the 20s
In the 20s, people generally don’t have many responsibilities to take care of. So, their risk appetite remains high. They can thus bank on their high-risk-taking abilities to invest in the high-risk, high-return proposition of equities. Ideally, the investment journey should begin from the first salary itself.
With equities, you generally have two options – invest directly in stocks or through equity mutual funds. Direct investments require in-depth market expertise to let money grow to outstanding heights.
Social, political and economic environments, domestically or internationally, affect stock market investments. Making the right call considering these developments will be imperative. Not all of us are experts. That’s why trusting an expert to do this is recommended. You can thus invest in top-performing mutual funds and rely on the expertise of the fund manager to steer your investments through.
Keep 80% of your investment portfolio in equity funds and the rest in bank accounts while you are in your 20s. Continue this pattern till you hit 40. invest in mutual funds through a systematic investment plan (SIP) by choosing from monthly, quarterly, half-yearly and yearly payment intervals.
Investments to Choose from 40 to 60
Following the investment discipline from your early 20s till you hit 40 will likely leave you with a handsome corpus already. For example, if you invest INR 5,000 monthly for 15 years, you will likely build a capital worth INR 25 lakh on a total investment of INR 9 lakh, assuming a 12% annual return.
You can set aside a few from the generated corpus if there arises a need and park it in your bank account.
As responsibilities rise at that time, cut down your equity exposure to 70% from 80% and the rest 30% in bank accounts. Maintain this portfolio till you become 55 years old. At that time, it is advised to take out 90% of the corpus and park it in stable investments like fixed deposits. Maintain this till you retire. The rationale behind taking out 90% corpus is that you cannot entertain any fluctuation at the fag end of your professional life.
Conclusion
Investing systematically and intelligently is important to accumulate the required wealth to meet your life goals. Each life stage is different, so the investment strategies should differ. Apply such strategies to lead a successful financial life. For more financial insights, visit zarooribaathai.in.
