‘It’s never too late’ - this would hold for lot of things in life but not so much for investments. Your age has a critical role to play with respect to appropriate investment selection. Let’s look at the investment steps you must take depending upon your age.
When you are young
Time, when it comes to investing, can be tricky to deal with as it can be the best thing going for you, but if you wait too long it can be your biggest detractor. That said, if you’re trying to start investing in your 20s or 30s there is a great case to be made for investing as much as you can.
If lack of funds is a thing you’re dealing with as you consider while investing in your 20s/30s, keep in mind that ‘little drops of water make the mighty ocean’. You might think that if you’re able to put away Rs 5,000 each month won’t accomplish anything much. However, if you invest Rs 5,000 regularly for 20 years, it can translate into as much as Rs 50 lakh to Rs 80 lakh.
PREPARE FOR RAIN
You should create an emergency fund. The fund should consist of at least six months’ worth of living expenses held in a liquid interest-bearing account, although you may need a year’s worth of expenses saved or more if your income is less stable.
Ensure you have adequate health and life insurance coverage to protect your family in the event of a death or disability. We all like to think we are invincible in our 20s/30s, but that’s not always the case.
SAVING FOR TAXES
Ideally these investments can be made in combination of PF/PPF contribution, New Pension Scheme (NPS) and Equity linked savings scheme (ELSS). If you make these investments, you not only save taxes but also grow your investments.
When you are middle aged
This is the age when you are usually at the peak of your career. These are typically your high-earning years, which makes it a good time to become more thoughtful about whether you’re investing in the right way. When you are middle aged you must additionally do the following:
MAKE RETIREMENTS SAVINGS YOUR PRIORITY
If you have kids, you may be feeling the need to put your retirement savings on hold in favour of saving for college tuition. Well, as the old saying goes: You can borrow for college, but you can’t borrow for retirement. At 40s/50s, it’s critical to keep track of your retirement savings.
FOCUS ON YOUR INVESTMENTS
Every investment must have a purpose or goal associated with it, enabling you to invest each account according to your time horizon and your risk tolerance for each goal. For example, if a portion of your portfolio is earmarked for your kids’ college fund, and they are less than 10 years away from completing their schooling, consider making sure your investment allocation for that account is more conservative than funds you’re saving for a retirement that’s decades away.
When you are retired
Retirement phase usually requires regular income to meet living expenses. You must divide your retirement portfolio into essentials and market. Essentials are those funds that you need to meet your living expense. These may be invested in FDs, post office senior citizen schemes, liquid funds, monthly income plans etc. ‘Market’ portfolio includes funds that you don’t need during retirement. You can invest these in index mutual funds or ETFs.
You’ll also probably want to revisit your estate plan-your last will and testament, living will, power of attorney-and confirm that your beneficiaries are up-to-date on your life insurance and retirement accounts.
Nobody cares more about your wealth and your money than you do, so you have got to own it.
The writer is a SEBI Registered Investment Adviser and is a founder of AK Advisory (www.ankurkapur.in <http://www.ankurkapur.in/>).