Saving is one thing that every Indian household embraces as a part of its culture and gets imbibed into our day-to-day routine. Realized or unrealized, each one of us starts saving for that favorite toy or dollhouse or sports watch or mobile phone or dream house etc. This style of saving can be defined in a structured form as Life-stage saving. When savings flow in, the next step is investing. All these things in To-Do or To-Get list are nothing but investments. Hence the investing goes as Life-stage investing.
This investing style is an upshot of investments at different stages of life. Broadly, there are four investing phases in human life- the start of career, wedding, parenthood and retirement phase. Each of these phases carries with itself a set of responsibilities and duties and hence, a different bracket of investment(s).
Factors influencing investment decisions at different life-stages:
1. AGE: As you grow old, the risk aversion grows. This is a matter of fact that younger people are more inclined towards risk-taking.
2. DISPOSABLE INCOME: The amount of income you have at hand to invest after taking care of all your needs and wants is called the disposable income. Disposable income is different at different stages of life as it gets affected by the number of dependents, total income etc.
3. SAVINGS: Savings directly affect investments. The more you have saved, the more you can invest.
4. MARKET TRENDS: For anyone who is looking forward to investing, the market situation is an important factor to consider. Also, the economy of a country plays a vital role.
There are four broad categories of life-stage investments as discussed above. These are:
START OF CAREER
This is the most exciting and rewarding stage of life. A fresh graduate out of college full of enthusiasm and life-altering goals. A handsome salary at hand, fewer responsibilities and a huge appetite for risk are a perfect combination to start investing.
At this stage, one can go for about 50-70% investment from the salary depending upon the expenses covered.
The best suitable instruments at this stage are Initial Public Offerings (IPO), Equity funds, real estate, and equities.
Once you are on your own and have settled with your career, the next stage is marriage. While marriage is a mixed-bag full of zeal and zest, it brings along responsibilities and duties. With responsibilities come expenses which lower the investment levels. Since this stage involves a lot of future planning and present settling-in, a lot of your income will be invested in the same.
People at this stage save about 30-40% of their income for investment. The best advice during this stage is to keep going even if the amount reduces considerably but this little amount is going to pay off in the future when you will need it more.
The best suitable instruments at this stage are ULIP (Unit-Linked Investment Plan), Hybrid Funds, Initial Public Offerings (IPO), National Savings Certificate (NSC).
While it was still the two of you managing and living the newly created lifestyle, a child brings the 3-D effect to it. With the increase in happiness increases the number of dependents and so does expense. As happiness increases, so does the number of dependents and which that increases the need for liquid funds at hand. There can be unplanned and unexpected events with a young one in the family. The expenses also shoot-up exponentially.
Risk aversion takes over at this stage of life. People tend to invest only 20-35% of their income at this life-stage. But as I said earlier, keep investing even if small, this will pay off when the time comes.
The best suitable instruments at this stage are debt funds, public provident funds, fixed deposits, recurring deposits, pension plans etc.
This is the time when you reap the benefits of most of your previous investments. Retirement is one of the biggest life-altering phases. It comes with a routine change which one gets used to in almost 30 to 40 years of service. This stage also requires a new source of income which is a regular one.
People invest around 10-15% of their income in low risk-high liquidity instruments.
The best suitable instruments at this stage are overnight funds, senior citizen savings scheme, post office monthly scheme, liquid funds etc.
It is very important to plan things in life. Although, the uncertainty factor can never be eliminated from things, being prepared is always good. Hence, savings and investing early in life lay the foundation of a secure future and independent later years.
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