Life stages and investment strategies

When it comes to investments, one’s size does not fit all. Everyone has different life situations as well as specific life goals. However, one thing that stays common is the ‘change’ and one should adapt to the same. The way you were investing as a young earner might be different from that of a retired individual. This is because life stages change and so do your financial situations. Hence, it is always prudent to look at your present life stage and financial situation before deciding your investment strategies. In this article, we would discuss three different life stages and their respective investment strategies.

Young earner

Typically, young earners have no financial responsibilities to cater to as most of their parents are still contributing to their family earnings. This gives them an opportunity to stare at a cash flow surplus. However, its utilisation is something that would decide their financial life. Usually, people either splurge the surplus or invest it. However, what we believe is that people should avoid taking such extremes and keep a balance between investments and spending.

Investment strategy: Here, you first need to ensure your risk appetite. Though on the ability front, you might be able to take risks yet on the psychological front, you are not. Hence, understand your risk profile. Then, to start with and gain some experience in investing, start investing in aggressive hybrid funds, and even in equity investments in the index funds. Then as you gain some experience, you can have a portfolio that is more tilted towards equity.

Middle age (having family)

In middle age, there can be two situations, either you have a family or you don’t. By 'family', we mean your spouse and kids. Those who don’t have a family can still continue with the strategy that you had as a young earner as explained above. For rest, you need to first understand your financial responsibilities. Now, as you have a family, there are some financial needs that you need to take care of. Such needs include a child’s education, their marriage, buying a first house, etc. Remember, one should first invest in those financial goals that cannot be deferred to any future date.

Investment strategy: In this life stage, you are pretty much matured and understand your risk-taking ability and willingness very well. Hence, depending upon the same, you can consider having a good mix of equity and debt mutual funds that will help you to accumulate for various financial goals. Having said, investments should be made entirely in low to medium-risk debt mutual funds for goals that are near term. This will make sure your financial goals. Don’t go for a toss due to undue volatility in equities.

Retirement

Again, in the retirement stage, there can be two situations, either you are purely retired or you continue with your practice as a doctor, lawyer, etc. Again, for those, who are purely retired, the risk-taking ability and willingness, both are less. Those that continue to run their practice would have a comparatively higher risk appetite due to the continuous flow of income.

Investment strategy: In this life stage, if you have a limited income then, it is prudent to have a proper retirement plan in place wherein, you understand how you wish to manage your cash flows. However, if you are the one, who continues with your practice, then you should also have a proper retirement plan in place. Further, you can also invest in a portfolio that is tactical in nature. This will not just help you to play safely in your retirement but also help you to create wealth by taking tactical calls.