Arti Arora, CFP | Head Financial Planner
The personal finance world is quite atypical and there is a great deal of customization required for any kind of financial advice one may be rendering. ‘One size fits all’ or ‘one pattern suits all’ does not apply but age bound well-structured advice is surely worth being referred to as it is applicable to the defined age bands at least on a general level if not specifically.
For an individual in the age range of 21-30 years, one can advise a moderately aggressive to aggressive portfolio given the fact that he / she is just starting out, they don’t have responsibilities as such and most of their important financial goals would be longish in nature. This generalize framework would apply to at least 75% of individuals in this age band and thus it makes sense to refer to these investment strategies as defined for different age groups. The disclaimer here being that any investment decision must be taken in consonance with one’s risk profile. A twenty five year individual may have a conservative view to risk in which case recommending him an aggressive portfolio is going against the norm.
In this write up, we hereby list out the different investment strategies for different age groups that one may refer to for a general reassurance and understanding –
21-28 Young unmarried
29-35 Young married
36-45 Married with kids
46-60 Settled life with older kids
60 plus Retirement life begins
Typically, for a 21-28 years individual, one would recommend long term SIPs in diversified equity mutual funds preferably in mid cap and focused funds that may be high risk but also carry higher return potential. In this age band, one generally doesn’t have responsibilities to address to and even if there are financial goals, they are primarily limited to car or house purchase, in which case one can as trade-off for better returns take higher risk.
For a young married individual or family unit in the age range of 29-35 years, an ideal investment strategy would be an asset allocation based one with higher tilt towards equity &equity oriented avenues. As the expenses would go up in this age band, the need to maintain emergency reserves equivalent to at least 3-6 months of monthly expenses remains. A 65-35 allocation in equity & debt & allied investments would augur well.
For an individual in the 36-45 age band having kids going to school and other increasing expenses, the need to maintain an emergency reserve equivalent to at least 6 months to an year’s expenses in cash & allied investments is suggested. Equity debt allocation spanning between 55-45 and 60-40 is advised.
Asset building and responsibility bearing are dominant in this age slab and so reviews of investment portfolio and corrective action wherever required is suggested. 46-60 years age band comes with the children’s higher education or building nest egg for them as dominant goals. Asset wise, one is more settled but there are supposedly huge outflows for the goals mentioned above that requires a greater part of the investment portfolio to be held in safer havens as cash or low duration debt funds. So, for goal funding investment plans due to a year or 18 months, one has to move in to conservative allocation. Generally speaking, a balanced allocation of 60-40 in debt and equity is recommended.
Crossing the milestone age of 60 and officially getting into a new phase of life, the retirement phase, it is advised to follow an income oriented approach and create an investment portfolio that yields regular income. A small amount equivalent to 15-20% of the total investment portfolio can be invested in equity oriented avenues for those extra returns at minimal risk.
The above broadly outlines suitable investment strategies and options across different age groups and a deeper thought and a more calculated, well devised approach when choosing the exact avenues would go a long way in having a fulfilled financial life.