What the ideal investment portfolio looks like for different age groups

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A lot of things change with age. Your preferred foods, your friends, the way you choose to spend your leisure time, and even your priorities - age alters all these things. Your investment portfolio is no exception to this rule. With age, the right investments for your portfolio keep changing.

This is because your financial goals, your risk tolerance, and even your investment budget undergo various changes over the course of your life. So, it is very important to ensure that your investment portfolio keeps up with your changing needs and goals.

But to do this, you need to first be aware of what the ideal investments for investors in different age groups are. So, let's take a look at how the ideal investment portfolio varies across age groups, right from your 20s up until you retire.

Investing in your 20s

This is the age group when you would have just graduated and gotten your first job. Since you will probably be earning your own money for the first time in your life, your newfound financial independence will no doubt be a great experience. But it is also essential to start investing right away, so you can get a head start and have time on your side.

Here is a closer look at the different aspects of your finances and your investment profile at this stage.

Your income:

You will only be starting to earn, so your income may be on the lower side. But the good thing is you have years ahead of you to earn hikes and promotions.

Your expenses:

In your 20s, most of your expenses will be your own, since you will likely be single during this life stage. So, your everyday expenses like fuel, provisions, groceries etc. may make up most of the costs.

Your debts:

You may not have many debts in your 20s, since you will only just be starting your financial journey. Some people may have student loans, which need to be repaid once they start earning.

Your risk profile:

As an investor in your 20s, you can afford to take more investment risks. This is because even in case of any loss, you have several years left to recover them and make gains.

Investment options for this life stage:

At this life stage, make sure you have an emergency fund in place. Also, get a term life insurance plan to secure the future of your financial dependents, whether they are your parents or your spouse. Apart from this, you can choose to invest in high-risk high-reward investment options such as the following –

  • Direct equity
  • Cryptocurrency
  • SIPs in equity mutual funds

Investing in your 30s

In your 30s, you may likely be more well-settled in your career. With almost a decade behind you, you will also be looking forward to more salary hikes. If you are self-employed, your business venture may have found its footing around this stage. You will also face additional responsibilities in your 30s, because you may be married and have children.

Here is a closer look at the different aspects of your finances and your investment profile at this stage.

Your income:

Since your income is more steady at this age, you will be in a better position to plan your finances and accommodate more investments and expenses. You may even be in a double-income family if your spouse is also an earning member.

Your expenses:

In your 30s, your expenses will also see a steep increase. Apart from the additional costs of managing your household, you will have to account for your children's school fees and their everyday expenses too.

Your debts:

With a significant increase in your earning capacity, you may also take on more loans in this phase. For instance, you may have a home loan to fulfil your dream of buying your own house. You may have taken an auto loan to buy a car. Or, you may even have a personal loan or two for various emergency financial needs.

Your risk profile:

As an investor in your 30s, your risk taking ability attains its peak. This is because you have several earning years ahead of you, as well as the earning capacity to invest heavily for your future. Nevertheless, it is essential to balance high-risk investments with a few stable options in your 30s.

Investment options for this life stage:

You can expand your investment portfolio in your 30s. You also need to revisit your insurance coverage to check if it is enough to cover your spouse and children. A savings plan, ULIP, or a child insurance plan may be good options to consider here.

In addition to that, here is a list of some ideal investment options for this phase of life.

  • SIPs in equity and debt mutual funds
  • National Pension System
  • Real estate
  • Gold

Investing in your 40s

In your 40s, your retirement is much closer - only two decades away (assuming you are retiring at 60 years of age). So, your investment profile and portfolio also need to change accordingly. Your debt portfolio also needs to undergo some changes in your 40s, considering that you are approaching retirement.

Here is a closer look at the different aspects of your finances and your investment profile at this stage.

Your income:

In your 40s, your income may be at its peak, since you could be earning the highest possible salary for your age bracket. So, make the most of these earnings to invest as much as you can.

Your expenses:

Your expenses will most likely be similar to your outflows in your 30s. Inflation may have driven the total costs higher, but with a pay hike or two, you may be able to set off the increased costs.

Your debts:

It is advisable to pay off most or all of your debts in this age bracket if you can. Also, avoid taking on any major long-term debt during this life stage, because you may then have to postpone your retirement to repay the dues.

Your risk profile:

In your 40s, your risk profile turns more conservative. You may want to steer clear of unwarranted investment risks and focus on capital preservation instead.

Investment options for this life stage:

From age 40 to 49, your investment portfolio should gradually see a decrease in exposure to high risk assets and an increase in fixed income options. Here are some investment options to consider.

  • Fixed deposits
  • Government bonds
  • Corporate bonds
  • Large-cap equity
  • Dividend paying stocks

Investing in your 50s

Your 50s are when you need to ensure that everything you earned during the past three decades is safe and ready to fund your post-retirement life. This requires careful financial planning and a better understanding of the life goals you wish to pursue after you retire. You also need to be aware of your risk profile and tolerance at this stage.

Here is a closer look at the different aspects of your finances and your investment profile at this stage.

Your income:

Your income will likely be stable at this age. There may not be any major hikes, so you will have to fit your expenses and investments within the current income.

Your expenses:

Most of your major expenses may be taken care of. Your children may even start earning their own income by this time, so your household costs may even reduce.

Your debts:

Ideally, by this time, you should have paid off all your debts. This way, you can enter the retirement phase of life debt-free.

Your risk profile:

Your 50s are certainly not the right time to take on more investment risks. Focus on keeping your corpus intact and increase exposure to low-risk assets and schemes.

Investment options for this life stage:

With retirement just around the corner, you need to ensure that you have an alternate source of income to support you once you stop working. You also need a sizable retirement fund to meet your post-retirement goals. Here are some investment options to consider.

  • Debt instruments
  • Debt funds
  • Gold
  • Recurring deposits
  • Dividend paying stocks

Conclusion

The guidelines outlined above can help you create the ideal investment portfolio across each life stage. The important thing is to figure out what works best for you and alter your portfolio accordingly. Revisit your investments every year or so to see if they are performing as needed. And rebalance your portfolio if required, so you can achieve your goals and retire comfortably.

Read next: Do millennials need life insurance?

Age plays a key role in investing. And it also plays an important role in life insurance. The common misconception is that when you are young and healthy, you don't need a life cover. So, do millennials need life insurance? To know the answer, you can check out our blog on this subject.

Read it here

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