Investing and wealth creation take many years. Financial goals and needs vary for each individual. Despite the differences in goals, certain fundamental aspects of investing should be adhered to.
Everyone must plan their financial affairs to ensure economic security. Diversifying investments through various methods is crucial in achieving different financial objectives. Additionally, investment strategies should be adjusted based on age.
Ages 20-30: Investment is the primary method for growing wealth. However, financial discipline is equally important. Younger individuals have a longer investment horizon.
For those aged 20-30, investing in high-risk, high-return schemes is advisable. It’s essential to ensure that the equity ratio in the investment portfolio is high. With lower income and fewer responsibilities in this age group, higher-risk investments are viable.
Therefore, it is recommended that up to 80% of investments be in equities. Additionally, 15% should be allocated to government-backed savings schemes like EPF and PPF, and 5% should be kept in a bank account as an emergency fund. Planning to repay education loans is also essential for students in this age group.
Ages 30-40: Individuals in this age group can maintain an equity ratio of 60-70%. It is an opportune time to begin retirement planning, and the National Pension System (NPS) can be explored.
Many individuals in this age group also consider investing in a home, often through a bank loan. It is advisable to make a 20% down payment and plan to pay the EMI for 20 years, with a significant portion of income going towards home EMIs.
Ages 40-50: At this stage, individuals experience significant lifestyle changes and increased financial responsibilities, such as caring for parents and funding children’s education.
Due to these additional costs, low-risk bonds and fixed investments should be prioritized. A balanced portfolio of 40% equity and 40% debt funds is recommended, with 5% of income allocated to an emergency fund in the bank.
Ages 50-60: The pre-retirement period is crucial for investors in this age group. It is essential to analyze the returns on past investments and reassess future goals.
As individuals approach age 60, equity exposure should be reduced, and focus should shift to investment alternatives such as high-yielding bonds.
Considering continued work after 60, a portfolio with 40% equity and 60% bond exposure is advisable.
Ages 60-70: Most individuals are comfortably retired at this stage. Retirement funds should be invested in high-guarantee bank FDs or guaranteed schemes like the Senior Citizen Savings Scheme and PMVVY.