Is age just a number? If age was just a number, you would see senior citizens roaming around in baggy pants and short skirts? Well…In India, you don’t see senior citizens wearing these clothes. These clothes are worn by the youth in the country. Do you see senior citizens grabbing and eating Burgers and pouring soft drinks down their throat? Well, they might eat a few burgers, but nothing like the youth in our country.
If eating habits and the clothes you wear differ across age groups, then so must your investing habits. Just as the youth in India love eating out and late night parties, the senior citizens love the traditional food they eat at home. Investing at 25 is different from investing at 35. Similarly, investing at 40 is different from investing at 50.
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Investing in your early twenties
This is the age when you love taking risks. You love riding your bike, real fast on the road. The early twenties is the time you take unnecessary risks and your parents just can’t understand you. You look at the youth doing wheelies on the road….You are in your early twenties and just started working on your first job. You earn a decent salary. The problem….All your money is spent in no time and not because you are sending it home.
Youth is the best time for you to take risks in investment, as you don’t have much responsibility. This is the best time to invest in equity (equity mutual funds + stocks), which give very high returns, but at high risk. Saving money can be difficult at this age, but you must somehow save money and invest it in equity.
An investment in good stocks and equity mutual funds can give high returns over the long term (at least 3 to 5 years). Investing in equity for the long term is also less risky, as volatility reduces. If you invest in equity at a young age, your money has a lot of time to grow. You could retire a Millionaire. Invest some money in safer fixed income securities like fixed deposits. This investment can help you in tough times.
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You now have a good stable job and a decent salary. In your late thirties, you would be married with young children. If you have availed a home loan, you would be repaying home loan EMI’s. You might also be repaying a car loan.
The first thing you must do? Avail a term life insurance plan to support your spouse and kids, in case you are not around. You pay a fixed sum of money called a premium to a life insurer, for a fixed time period called tenure or term of the policy. If you die before the tenure of the plan, the life insurer pays an amount called the sum assured (death benefit), to your spouse and children (nominees of the term life plan). If you survive the term of the life insurance plan, you get nothing.
Term life insurance is very important for your family to maintain the life style they currently enjoy, even in your absence. Can you be called responsible, if you leave a car loan/home loan for your family to repay in your absence? If you have availed term life insurance, the insurer will pay back the loan.
Make sure you avail health insurance, as hospitalization for you/family can be very costly. You need a family floater health insurance plan, which provides health cover to your entire family. Should you increase your investment in equity? No, this is the age for you to reduce investment in equity and focus on paying back your loans. You should also invest in fixed income securities like fixed deposits. Reduce your investment in equity, but don’t exit it. An investment in equity gives good returns over the long term and every rupee you invest, could give much more at retirement.
You are now in your early fifties. You will soon retire. This is the age for you to preserve wealth. Your risk appetite is quite low at this age. You don’t want to and cannot afford to take risk at this age. You must shift money from equity (high risk) to fixed deposits, NSC, Recurring Deposits and other safer financial instruments. Keep some money aside in equity, as you can get high returns from it. Make sure you have sufficient health insurance, as hospitalization can be very costly at this age. Make sure you pay premiums regularly, as you need this health insurance plan after you retire.
Investing is an art which you need to learn at a young age. Make sure your investments are compatible with your age. Just as you adapt to survive, your investments must also match your age. Be Wise, Get Rich.
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