Ageing is a pretty standard and integral part of a human’s life. Yet, the needs and requirements of a person keep changing with the advancing years. At different times in life, priorities keep changing and so does the requirement of money. For instance, when we are in college, a few thousands can suffice. And yet, the same thousands would be inadequate when one is in the middle-ages, looking to make an investment in a business or real estate.
Just the like the priorities of life change, so must the investment strategy. The end goal of any investment is to seek to create a corpus for steady income towards the later part of life when retirement comes. With this objective, a person can look at different investment strategies at different times of life. Basically speaking, an individual investor needs to take into account the some of the following factors before building the right portfolio.
- Age
- Risk capacity
- Investment amount
Risk capacity and investment amount is a personal choice and needs to be decided by the investor. However, the investor’s age can affect both their risk capacity and investment amount. Building a portfolio for a 25-year-old will vastly contrast for someone who is in their 40s or 50s mainly due to the risk capacity.
The Young Investor (25-35)
An investor in their late 20’s and early 30s has years of investing ahead of them and may afford to take more risk. The understanding is that even if the investments do not meet their desired expectations, they still have time on their hands to possibly be able to build a substantial corpus or meet their expectations.
They could even opt for 2-3 different schemes managed by different fund managers to have the benefit of a diverse portfolio. Their investments should be towards equity funds. Birla Sun Life Frontline Equity Fund is an open-ended Growth Scheme which invests in equity and equity-related securities, diversified across various industries in line with the benchmark index, S&P BSE 200. While allocating amounts is best left to the individual investor, they may invest in other equity-based funds and invest a smaller proportion in a long-term debt fund. Investors should consult their financial advisors if in doubt about whether the product is suitable for them.
The Middle aged investor (35-50)
A middle-aged investor has to carefully balance their investment portfolio. While they mostly earn more than a young investor, they have more expenses like a home loan or their child’s education fees. With greater responsibilities and expenses, the risk capacities of such investors are lowered to say moderate level. At this stage, it would be suggestible to reallocate your investments in debt funds while investing in equity growth funds. You may also consider index funds which mirror the performance of a benchmark index like the Nifty or Sensex.
The Senior Investors (50 )
This age group generally receives the highest income but has only a decade left before retirement. The risk tolerance is low and so is the risk taking capacity. Senior investors should allocate a majority of their investments in debt funds. If the investor can take on a bit more risk, a tax saving equity-linked savings scheme (ELSS) can be considered. While they do have a lock-in period, they are eligible for tax deductions under section 80C. Considering this age group has a higher income and is taxed more, an ELSS scheme may just kill two birds with one stone.
With a well-defined investment objective mapped to requirements and age, a person could seek systematic investment in mutual funds. Given that, financial independence is critical in the lean years of retirement, the key to a secure happy future is to start investing now.
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