How to Ace your Investments for Every Stage of Your Life
Updated: Jun 8
A friend of mine recently told me how she has already started investing for her new-born child’s education. “Just look at me now, planning for my child’s future without wasting a single day,” she said as we laughed about how we used to be when we were in college together – carefree, reckless and like there is no tomorrow. Well, the fact is, we all change just like our investment preferences. Every decade of our life, from the time we start earning, commands a different approach towards how we invest our money. It is indeed essential to know how our priorities change with time and how we can tweak our investment plans to suit these changes. In short: changing priorities in life mandate changing investment plans. Technology is at our disposal and with the help of apps like Basis, it is now easier to keep track of the changes we women need to make in our investment plans as we grow. But, if you want an overview of how the investment climate could change with your age, read on.
Starting young: investments when in your 20s
A woman in her early 20s, who has just started a career, may not have significant financial obligations and can afford to save a fair amount out of her earnings. While investing your money might sound boring in your 20s, starting young is easily the best way to get ahead. That said, it is also essential to enjoy your new-found financial freedom.
Starting a SIP will help you keep aside a small amount every month based on your comfort and convenience. Make sure you check your risk profile before venturing into mutual funds. Like all other investment options, mutual funds come with a certain degree of risk. Weighing the risks before investing is essential, especially if you have an aggressive approach towards investing.
Ensuring that you have opted for your Employees’ Provident Fund(EPF) is one of the first things a fresher should do when joining a job. It is a fund to which both the employee and employer contribute 12 per cent of the former’s basic salary amount each month. The government presets this percentage. If EPF is a tougher option, especially for youngsters in start-ups, a Public Provident Fund (PPF) will come handy.
On the other hand, an adequate health insurance plan will take care of hefty medical bills and uninvited medical exigencies. It is cost-effective when taken early and therefore, a sensible choice to make in one’s 20s. If the company you are working in provides health insurance benefits, make sure you extend the cover to your parents if possible.
Providing financial protection to your family often forms the basis and first step of financial planning. Enter the term plan, and the most basic cover is the one which pays you a lump sum on death. It is always best to opt for the simplest form of the term plan. Your 20s is the right time to buy term insurance as the premium payout is lesser and hence is affordable. It also helps you save tax.
Reviewing your money in your 30s
Say goodbye to your carefree 20s, because the 30s are the time to get serious. Well, not too serious to miss out on the pleasures that life offers. According to me, the 30s is the time to fortify one’s finances, sow the seeds of financial prosperity and reap their rewards for the rest of one’s life.
Assuming that you would have already started investing, this is the time your investment decisions may need tweaking. Therefore, it’s necessary to revisit your investment plan periodically from now on and take corrective actions wherever necessary.
Start allocating funds for long-term goals such as retirement, a kitty for the down payment of your home, children’s education or any other long-term goals you have. If you have already bought a life insurance policy, see if you are adequately insured. If not, then you will have to adjust your insurance policies. As a thumb rule, your sum assured should be at least ten times of your annual income.
Here’s the larger picture: In your 30s, you need to review your investment decisions and your life insurance coverage if your family status has changed. Review your financial goals, along with your risk profile. Make sure you improve your investment portfolio based on your risk appetite. And if you are planning to take loans for a home or anything else, make sure you plan them in such a way that they will not harm your financial status.
Responsible investments in your 40s
If your 30s brought a whole new set of responsibilities like a flourishing career and a family, the 40s would bring you more responsibility and angst about closing in on retirement. At 40-something, your financial dependents would have increased (for some of you), expenses will be high, and your risk appetite will be quite low.
One of the most important things you can do for your finances at this stage in life is to pay off high-interest consumer debt. If you have high-interest debt, finish it off once and for all during your 40s. It is also time to adjust your retirement account contribution. Upgrade it as you are making more money than ten years ago. You can boost your retirement contribution by creating different saving accounts, diversifying your investments and contributing money towards pension plans. Managing investments is critical in this period.
Life can throw curveballs at you anytime, and it is always advisable to be prepared. Make sure you have sufficient life cover so that your family’s future is always financially secure.
Another way to be prepared is by having an emergency fund that you can contribute towards every month. Explore the various offerings for such investments to make sure you get the right mix of liquidity and interest rates.
Now that you have accumulated wealth take time to plan how you would like to distribute your estate and formalise a will. Make sure that your assets and investments do not have nominations that are contrary to what you have decided in your will.
The youth of old age: 50s
By the time you reach this age group, your investment plans will be in place, and you would be looking forward to a comfortable, tension-free retirement. However, you can continue investing, but with a different approach this time.
At this stage in your life, the aim should be at maximising your savings. You can save about 35 to 40 per cent of your earnings and invest through your work life.
Provident Funds can be one of the safest investing platforms, but depending on it entirely for retirement needs should be avoided. Make sure that your portfolio has a mix of equity to keep the returns on an upward graph.
Make sure you buy yourself a health policy while you are still years away from your retirement. If you get a health cover before touching 50, you get the benefit of playing a lower premium, you also avoid rigorous testing, and you can buy it online without any trouble.
Wherever you are in your life, investments can help make it better. Looking to review your earlier money decisions? Discuss it with like-minded women in Circles on the Basis app now. #AgeAppropriateInvestment