How and where to invest at different stages of your life
As the mid-life comes around, the focus shifts from financial growth to financial accumulation and sustainability. (Image: Freepik)
Having a resilient investment portfolio tailor-made to each life stage is essential for financial security and success. During early adulthood, the goal is to invest for financial growth, considering that income is low relative to their future. Investments are risky, but yield the financial benefits needed. Mid-life calls for a balance of stability and growth, with investments primarily going into real estate, bonds and other stable growing investments.
As the retirement stage nears, the focus shifts to income generation and capital preservation, with a heavy allocation towards more stable assets for sustaining retirement years. Adjustments and rebalancing are key at every life stage.
Investing during 20s and 30s
People in their 20s and 30s are at the beginning of their promising careers. This means that income is relatively low, and young adults poise themselves for financial growth. Early financial planning puts them at a significant advantage in the later years, taking more risks while investing is on the cards as there is a long horizon of investments ahead for them.
“The key here is to master the fundamentals of personal finance, which will further aid in the future. Mutual Funds, ETFs, Stocks are a few investment opportunities that will yield sizable results. Some strategies to follow while investing is the 50:30:20 rule, where the person spends 50% of their income on necessities, 30% on wants and desires and the remaining 20% goes towards savings and investments. This ensures decent financial growth and savings during their maiden career years,” says Swati Saxena, Founder & CEO, 4 Thoughts Finance.
Investing during 40s and 50s
As the mid-life comes around, the focus shifts from financial growth to financial accumulation and sustainability. People want to sustain their income so that their future needs are taken care of. This is a stage where debt should be avoided as much as possible, and the focus should be more on savings. Saving 35-50% of the income is considered ideal, but there are also several other secondary factors influencing it.
Investing in equities and balanced or debt fund to an extent should help with moderating risk equity. Large-cap funds invest in companies that are well established and have high market capitalization. These companies are financially healthy, reputable, and trustworthy. Thus, the risk is moderated despite the equity asset class. If one has a portfolio already, revisit it to allocate for different asset classes and reduce the number of riskier investments in the portfolio.
Investing after retirement
After retirement, most people want to sit back and enjoy an easy-going life. However, there is still a need for income so that the basic needs and expenses are met. The people seldom look for regular income over capital appreciation and hence look for alternatives like REIT, InvIT and at times fractional ownership products in commercial real estate.
“Additionally, it is good to have a passive generation of income as well. Some of the schemes to invest in are Senior Citizens’ Saving Scheme (SCSS), and the Post Office Monthly Income Scheme (POMIS). Additionally, investing in fixed deposits, mutual funds and the RBI floating rate saving bonds are also a few more options for passive income generation. This ensures better financial stability and sustainability during the retirement years,” informs Saxena.