Change is inevitable. We all through different life changes and so do the people surrounding our professional and personal lives. After every few years, the priorities in our life change but one need always remains constant in most scenarios, the need to create wealth. Our need to create wealth constantly reminds us to keep saving and investing in different investment avenues to create long term wealth through adequate diversification.
To understand how you can invest your finances appropriately at different life stages, continue reading:
Young professional (High risk appetite)
Someone who has recently graduated and have kickstarted their professional career, such individuals generally do not have liabilities or responsibilities and can take risk with their finances. A young individual can invest in stocks or equity mutual funds keeping a long term investment horizon in mind. Equity funds are a high volatile investment but generally offer decent returns over the long term. If you are saving 50% of your income, you should invest at least 30% of it in equity. At this point of time, one can avoid considering conservative schemes. Small caps and ELSS can be ideal for investment at this stage in life.
Happily, ever after
When you enter marriage and exit adulthood, your responsibilities increase, and this is the phase when you may face financial difficulties. What is better to do is to discuss all the financial responsibilities and divide them with your spouse. Then you can evaluate your existing wealth, consider the new liabilities, evaluate your existing investments, and then reshuffle your investment portfolio such that investing every month doesn’t affect your monthly expense budget. Living live as a young professional with roommates is different than living with your spouse and sharing responsibilities.
Starting a family
This is the stage in your life where you probably would want to reconsider your risk appetite and add / subtract investment schemes from your portfolio. If you are a parent or parent to be, there will be several expenses including frequent visits to the doctor. However, it is essential that you ensure that you save at least 30% or your total earnings. When investing at this stage, you may have to change your investing to goal based investing. If you are planning to have a child, you will have to start building a corpus that will take care of their nurture and upbringing. Goal based investing is recommended at this point of time as you will have start saving enough to take care of their school and college education fees.
Saving for your golden years
Once your children are old enough to take care of themselves, you enter the stage or are near to retirement. Retirement is something which every hard working individual looks forward to as they are free from all the responsibilities and want to spend the rest of their days tension free. By the time you near retirement you might have built a decent corpus to help you take care of all your expenses. Since you won’t be earning anything, you won’t be able to save and mostly will be living on a fixed budget. Ensure that you learn to keep your expenses to minimum so that you have enough corpus to tackle life’s unforeseen exigencies.
If you smartly invest at different stages of life and wisely utilize your money you will never run out of money. Diversifying your investment portfolio with mutual funds can be a good idea and as your responsibilities increase you can decrease your investments in equities and increase your investments in debt. If you adequately diversify your investment portfolio you might be able to create wealth at every stage of your life.