Investment Planning Strategy for Different Age Groups

Investment Planning Strategy for Different Age Groups

Investment planning is a dynamic process and it is very important to invest only after researching about investment plans and strategies that are best suited for one’s age. Investment planning should ideally be in sync with investor’s risk profile, financial goals and age of an investor.

Asset allocation should continually adjust as per the life-stages since your risk appetite varies with age. Risk taking ability of a youngster with no family responsibility will be different from an individual nearing his retirement. With age, your financial portfolio should adjust to have the right asset allocation.

Equity and Debt allocations are the  two best asset classes that form a critical part of your asset allocation. For equity allocation, SIPs are always preferable mode of investment giving benefits of rupee cost averaging and power of compounding . SIPs is a disciplined approach towards investing. A SIP helps to smoothen the investment journey.

The basic principle behind age-based investment allocation is that your exposure to equity risk need to reduce with age. 

Investment planning for 20s age group:

This age group primarily comprises of individuals who have started their careers. The risk-appetite of this group is the highest among all with fewer responsibilities and liabilities, allowing them to be highly aggressive in their investments. They can invest a major portion of their investment portfolio in equities via SIPs in mutual funds matching their investment objectives.

Ideal Investment Choices:

  • Equity Mutual Funds & Tax-saving Equity-linked saving schemes (ELSS) via SIPs
  • Financially viable Life and Health insurance plans (Lower insurance premiums to be paid if you start young)

Investment planning for 30s age group:

Smart investment choices based on your age allocation

This age group comprises of individuals with stable career path in the middle of making life’s biggest decisions like marriage, buying a house etc. With regular income, their main focus is on wealth creation and tax saving.

Ideal Investment Choices:

  • Equity / ELSS schemes via SIPs
  • Debt investments to balance and safeguard portfolio from downside risk

Investment planning for 40s age group:

This age group comprises of individuals with growing responsibilities to provide for one’s family, from taking care of parents to supporting the child’s education. These responsibilities put a lot of strain on investible income and focus of the investor shifts from high-risk high-return investments towards moderate risk securities generating stable returns. Risk-appetite of an investor changes from High risk to Moderate risk. Focus of asset allocation on the portfolio is taking less risk and accepting moderate returns while ensuring safety of your investments with higher debt exposure.

Ideal Investment Choices:

  • Equity Mutual Funds
  • Balanced Funds
  • Tax-saving ELSS

** SIPs is the preferred route of investment for mutual funds investments.

Investment planning for 50s age group:

Smart investment choices based on your age allocation

This is a group of individuals in their pre-retirement age, aware of the fact that soon their regular income will halt. In this phase, people are looking forward to the comfortable retirement. In this phase of your investment journey, you should ideally shift to conservative funds, reducing your exposure to the high-risk equity asset class in your portfolio. Risk profile of this group will move from moderate to low and the proportion of debt funds should increase in their portfolio to ensure safety of returns.

Ideal Investment Choices:

  • Systematically transfer your money from equity to debt funds.

Investment is a decision helping investor’s to achieve future financial goals. Investing at a young age would benefit the portfolio and reap the magical benefits of compounding. However, if someone has not started investing, its never too late. One can start investing at any age. The only impact would be on the risk appetite and long-term financial goals, which in turn will decide the strategic asset allocation of the portfolio. As you age, the asset allocation usually changes in favour of less risky assets because of increasing responsibility and a higher need for stability, eventually decreasing the risk appetite of the investor.

Earlier, the better! Longer, the merrier!