By : Shashank Suresh
There’s a famous proverb which applies to Investment. “The best time to plant a tree was 20 years ago. The second-best time is now”.
Your age may heavily influence your investment strategy, and your portfolio may look very different depending on where you are in life. To benefit from the power of compounding, begin investing as soon as possible. When you start investing when you’re young, you have more time for your initial assets to develop and enhance your wealth.
You may take advantage of the power of time by making investments in each decade of your adult life. Saving for retirement is a smart idea and nearly always advantageous, especially if you start early. Investing, on the other hand, carries dangers that must be understood.
The traditional rule of thumb was to subtract your age by 100 to determine the amount of your portfolio that should be invested in equities. If you’re 30, for example, you should invest 70% of your money in equities. If you’re 70, you should invest 30% of your money in equities.
The financial asset allocation you plan in your younger years are probably the most significant in determining your wealth for future. It is critical to realize the power of compounding and get started right away.
The 20s: Start of a Glorious Career
Even if you’ve just graduated from college and are probably still paying off your student loans, now is a good time to start investing.
By investing right now, you have the greatest edge over everyone else: time. Compound interest ensures that whatever you invest during this decade will increase at the fastest potential rate. You can focus on more aggressive growth stocks and avoid slow-growing assets like bonds because you have more time to absorb market changes.
Ideal allocation of Assets: –
- Stocks: 80% to 90%
- Bonds: 10% to 20%
The 30s: Rising Career
If you put off investing in your 20s owing to school loans or the ups and downs of starting a profession, your 30s are the time to get serious about saving. You’re still young enough to benefit from compound interest, but you’re mature enough to put aside 10% to 15% of your salary.
Contributing to your retirement should be a primary priority, even if you’re currently paying off a mortgage or beginning a family. You still have 30 to 40 years of active working life ahead of you, so now is the time to optimize your contribution.
Ideal division of Assets: –
- Stocks: 70% to 80%
- Bonds: 20% to 30%
The 40s: Stability
If you waited until your 40s to start saving for retirement—or if you were in a low-paying job and shifted to something more lucrative—now is the time to buckle down and get serious. If you’re already on track, take advantage of this opportunity to work on your portfolio. You’re in the middle of your career, and you’re probably nearing the top of your pay scale.
Portfolio Division: –
- Stocks: 60% to 70%
- Bonds: 30% to 40%
The 50s and 60s: Approaching Retirement
Now is not the time to lose concentration as you draw closer to retirement age. If you invested your money in the newest hot stocks when you were younger, you’d need to be more careful as you grow closer to needing your retirement funds.
If you don’t want to risk losing all of your money, switching part of your assets to more stable, low-earning products like bonds and money markets might be a smart option. Now is also an excellent time to take stock of what you have and start thinking about when you might be able to retire. Getting expert counsel might help you feel more confident about when it’s time to go.
Planned Asset Allocation: –
- Stocks: 50% to 60%
- Bonds: 40% to 50%
Planning
When you start planning your asset allocation, you need to set out goals to determine your investment strategy. Making a list of needs, demands, and emergencies will help determine a proper financial assessment. You could also take the help of a financial planner.
For short-term money, you should look for safer alternatives as riskier options like equities take time to average out the cost and give you returns. For the long term, equities average out and give you substantial returns.
Emergency Money
Saving money for a rainy day is essential. It’s unpredictable but also unavoidable. We all face situations in life wherein money is needed suddenly. It’s better to be prepared for it than regret it later.
When you start building your emergency fund, try to save 10% of your money ideally. You could invest it in risk-free options like FD, allowing you the flexibility to withdraw money whenever needed. Your emergency fund should ideally have at least 12-15 months of your current salary.
Now is the time to start implementing these adjustments. Early in life, wise decisions will have more time to compound in your favour and put you on the road to financial success.