Investment Basics- Age & Investment Plan

Your Age And Your Investment Plan — A lifecycle guide to investing

Age plays a key role in determining your investment profile. Hence, constructing a portfolio that suits your age is essential. By mapping your age and your background, you can establish a portfolio that comprises of different asset classes, in differing proportion. For example, if you are five years away from retirement, with no major savings for a post-retirement life, then you would build a portfolio comprising fixed income instruments. Similarly, a 24-year old would focus on parking investments in riskier investments like equities, since time is on his side.

We have constructed profiles based on your age and some assumptions. Then we have constructed a break-up of investments that can be used as a guide. You may wish to fine-tune this to meet your own requirements.

While reading through these profiles, please note that these are typical attributes and are not absolute. Again, your risk profile changes depending on how you perceive yourself too. A senior citizen with no dependents, but with lots of savings, may find it perfectly okay to take on more risk. Similarly, a young person but with many dependents and lots of financial liabilities may be more conservative than other people his age.

We have assumed that tax liabilities have been provided for, and the suggested investment break-up is for the net funds available. Broadly, you can classify investments in to cash and bullion, fixed income instruments, equities and mutual funds. Cash and bullion are taken as one, as both are equally liquid and widely used as a means of savings. Savings would also include funds in your bank savings accounts

Apart from pure equities and fixed income instruments, mutual funds are popular investment vehicles. We have classified mutual funds separately since the risk of investing in funds is relatively lower. Moreover, balanced funds juggle between debt and equity making an all-inclusive classification difficult.

Age : 22-30 years

Profile:
You are single or are married but with no kids. Dependents are not an issue at this stage and your focus is on creating a sizeable corpus of investments for the future. Incomes typically grow at a fast rate annually. The ability to take risk is high and losses in the short term are acceptable. You can invest in equities with a time frame of about 5-6 years which protects you from short-term fluctuations.

Age : 31-45 years

Profile:
You are now married and your family size has expanded, with two kids. Your parents are now dependent on you for emotional and some financial support. The focus is on consolidating your investments, making them more secure. The ability to take risk is there but to a limited extent. Limiting losses is a priority. Building on a corpus of funds for children’s education becomes a priority now.

Age : 45-60 years

Profile:
This is the age when retirement blues set in. Children's college and higher education make demands on your funds. You must also ensure that your retirement plans are in place, if you have not done it already. Hence, risk taking ability as a whole diminishes considerably.

Age : Beyond 60

Profile:
You are taking life easy, some introspection, spending time with the family and maybe doing some part time work. Or like some workhorses, you are still engaged as a full time consultant with your ex-employer. The ability to take shocks is extremely limited and you should lower your exposure to equities. Your prime criterion should be to have a higher proportion of fixed income investments and stay liquid to meet any medical emergencies.

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