How one invests depends a lot on your age, your portfolio could look very different depending on where you are in life. The more early you understand the power of compounding, the better it is. Starting young with investing can give you more time for your initial investments to grow and grow your wealth. You can make several investments during your adult life to take advantage of the time.
Saving for retirement early is a good idea and always beneficial. However, it also comes with its set of risks.
Investment Options for Your 30s
If you are in your 30s, you have more to profit from the investment market. A temporary downfall in stocks won’t hurt a lot since you have many years to make up for those losses. If you can handle the fluctuation, now is the time to invest.
- Public Provident Fund - A salaried person can claim up to Rs. 1.5 lakhs on deductions. If you invested in an equity fund, opening a PPF account for the remaining can expand and significantly balance your portfolio. It is an incredibly sound strategy for long-term investments. With this, you can enjoy a triple exemption benefit which can be opened with any bank or post office.
- A Stock-Heavy Portfolio: Long-term stock investments have taken over bonds and cash. While bonds are more stable, they won’t beat stocks. So, if you’re risk-tolerant, you should invest your top portion of your portfolio in stock funds and the remaining in bonds and cash. If you want to opt for a more straightforward approach, choose a target-date mutual fund.
- Real Estate: You may buy a home, especially if you believe you will stay put for a minimum of five years. You can also consider investing in a rental property or REIT.
- Yourself: Your 30s are the best time to bulk up your work skills. If you can start saving and increase your salary in your 30s, you’ll have decades to compound your income.
Investments Options for Your 40s
If you’re late to the investing party, you can catch up by putting the pedal to the metal and making some lifestyle trade-offs.
- Retirement Planning - Time goes by slowly, but you will be heading towards your retirement sooner than you realize. Hence, planning for your retirement ensures that you have a smooth and life financially good enough after that. Mutual Funds offer Pension plans that not only secure your future. They also provide tax benefits under Section 80C of the IT Act. We recommend you research and explore before making these investment decisions.
- Asset Allocation: In your 40s, asset allocation may lean slightly more towards lower-risk bonds and fixed investments than in your 30s. However, the ratio between stock to bond investments varies depending on the risk factors. The risk-averse investor will be more comfortable with 60% & 40% stock & bond allocation. A more regressive investor in their 40s might be happy with 80% stock allocation. But remember, the more stock holdings you hold, the more volatile your investment portfolio will look.
You can attach broadly diversified international stock funds and REITs to your investment mix too. Sticking out to low-fee index funds is one of the ways to keep your investing costs in check.
Investment Options for Your 50s
This time is perfect to decide your future goals and evaluate your current and future lifestyle. Scrutinize your current income, projected income, and tax situation. The results will then help you know your right investment choices. If you are on schedule for your retirement, you should keep on with what you did in your early decades. As you come closer to your retirement, you will probably dial back to your stocks and increase the allocation of bonds and cash to your portfolio.
- Health Insurance - Buy yourself a beneficial health policy while still away from your retirement. Getting a health cover before touching 50 will get you the benefit of playing a lower premium and avoiding rigorous testing. But make sure you renew it timely. If you are a salaried employee, check if the employer of your company can be converted into an individual policy when you choose to retire.
- Additional Income: Create income streams from your investments. Shift investments into higher dividend-paying stock and bond funds. This way, you can always structure your portfolio to generate some spending money in retirement.
Ultimately, how you invest in each decade will be dictated by the progress you’re making towards your financial goals. Start early to secure your finances.
(Check out 'Learn & Grow with Wizely' 'to read and learn all about the basics of investments and investment planning.)