Age and Investment Strategy

 

Being at the dawn of a new decade, it's advisable to draw up an investment strategy before allocating funds.

   THE events over the past one-and-a-half years have underlined the need to block the noise around you and remain focused on your investment goals. Sticking to your asset allocation, which needs to be devised after taking into account factors such as goals, age and risk appetite, is key to tiding over turbulent times. As the world steps into a new decade, here are some old, tried-and-tested tips you could bear in mind while chalking out your investment strategy:

Investor profile: 25-30 years old. Minimal responsibilities
Equity Allocation 60-80%
Must have: Health insurance

If you are below 30, with minimal family responsibilities, equities are for you. Life insurance may not be a top priority but health insurance is a must, even if you are covered under corporate mediclaim. You would do well to direct a major part of your savings (roughly 40% of your income) into equity. Many individuals in this category, by the time they turn 33-35, would have switched a few jobs, and would have been left with two or more salary accounts. Multiple bank accounts entail maintaining a minimum balance, which results in funds lying idle

Investor profile: 30-45-years old. Couples with kids Equity Allocation: 35-50% Must have: Term insurance, goal-oriented savings

Apart from health cover, life insurance will also come into the picture now, as the number of dependents — spouse, children and parents — increases. While home loan is necessary, do not borrow for splurging. Your total EMI outflow should not exceed 30-40% of your monthly income. Investments — a combination of debt and equity — should be made towards goals such as children's education, home loan prepayment, retirement planning and so on. 
   

Globally, the thumb rule is that allocation towards equity can be calculated in terms of 100 minus the investor's age. However, Indian investors will be more comfortable adopting an 80 minus the age approach

Investor profile: 45-55, inching closer to retirement Equity allocation: 25-35%% Must have: Health and critical illness cover

This stage, where individuals may have to fund their children's marriage, and have close to a decade left for retirement, merits rebalancing of portfolio. As your goals near completion, you would do well to reduce exposure to equities and increase allocation to debt or gold, to ensure that the final corpus is not depleted due to market fluctuations. This is also the time to think of making a will as you would have created some assets by now. Again, considering this is when individuals are prone to critical illnesses, a health cover — as large as possible — is essential.

Senior citizens: Age profile 60 plus
Equities: <20%
Must have: Liquid investments to take care of emergencies

Health insurance is simply indispensable for senior citizens. If you do not have a pre-existing policy, you might find it difficult to obtain one at this age. In such cases, you could bank on low-risk, liquid instruments to take care of your health needs. Also, avoid life insurance, as you are unlikely to be supporting your family at this stage. Instead, look at instruments like 9% senior citizens' savings scheme and post office time deposits that promise safety and regular income. Typically, senior citizens are risk-averse and it would make sense to stick to this approach in 2010 as well, but you can allocate a small percentage towards equities.