How Your Investment Portfolio Differs In Your 20s, 30s, 40s? Financial To-Do Lists Here

As we age, our desires and preferences change too. Just as years pass by, our financial needs see significant shifts too. Explaining with an example, Shlok Srivastav, Chief Operating Officer, Appreciate said, Have you ever made a bucket list? Were you to make one right now, chances are the items on it would vastly differ from the ones on a list you would have made 10 years ago. That's because, with age, your goals and desires in all aspects of life - personal, professional, health, financial - transform.

Accordingly, Srivastav said, "A strategic investment portfolio reflects your age-specific financial goals accurately. That's because it considers factors such as your risk appetite and investment horizon for an asset allocation that's ideal to meet your goals effectively. So, let's explore how your portfolio should look at different stages of your life."

Hence, here is how your investment portfolio differs in your 20s, 30s, and 40s as per Shlok Srivastav, Chief Operating Officer, Appreciate, a fintech platform for savings and investments:

In your 20s

This is the time when your ability to bear risk is the greatest out of all phases of your life. Chances are at this stage you don't have any financial dependents and only have to figure things out for yourself. You may also not have any loans taken out yet, other than perhaps an education loan. If you are still living with your parents, you don't have fixed expenses such as rent, utilities, etc. yet either.

For most of the big goals such as buying a house, saving for retirement, etc. you have a long time. For instance, you still have about four decades to go before you retire. So, your investment horizon is long which benefits you in two significant ways. First, it allows you to capitalise on the power of compounding or compound interest which grows your money over time.

Second, it gives you more room for lucrative assets such as stocks in your investment portfolio. The thing about equity and equity-linked securities is that while it offers higher returns than other investments it also has a high level of risk involved due to the volatility of the stock market. But if your investment horizon is long, like is the case in your 20s, your equity investments have the time to absorb the short-term market fluctuations.

Asset allocation

Due to a higher risk appetite and long investment horizon, you can invest the majority of your funds in equity. Experts say about 75 to 80%, while the remaining should be invested in fixed-income securities such as bonds, government securities, etc., to hedge risk. When building your investment portfolio, consider international investments for better diversification. Across years but especially in your 20s, it's also important to include financial instruments whose primary purpose may not be building wealth but satisfy other financial needs such as risk mitigation in the case of insurance since the majority of your earning potential is in the future and it would be prudent to insure it.

Financial to-do list

- Build an emergency fund with an amount equal to 6-12 months' worth of your expenses. This money needs to be liquid for quick access and can be parked away in a fixed deposit or high-interest savings deposits.

- Get yourself a health insurance policy. The younger you are when you get one, the better it is because you will have the benefits of a lower premium, riding out the waiting period, etc.

- Map out your short-term, medium-term and long-term financial goals and align them with appropriate investments.

- Begin saving and investing money even if it's small amounts. Maintain an allocation of 75% at least in equity investments such as stocks, ETFs, etc.

- Diversify with international stocks to add global exposure to your portfolio.

In your 30s

30s is the time when you may have found some stability and growth in your career and are ready to commit to life milestones such as buying a house. Depending on your preference, you may also want to start a family. So, with this, your risk appetite goes down a little. You may take on a mortgage for your home, you will have newer expenses to take care of such as childcare, and you will also have to seriously start saving for retirement.

When investing in your 30s, you still have the power of compounding on your side but this time you also have the benefit of a bigger and more stable income so you can really focus on building your net worth through investments. You can still be aggressive in your investing approach but your strategy also has to be more well-thought-out because the stakes are higher now with more responsibilities and bills to pay.

Asset allocation

Your portfolio in your 30s should still be equity-heavy but slightly lower than in your 20s. Look at having about 65 to 70% in equity while the rest should be put towards safer securities. If you haven't gone beyond the domestic market in your 20s, you should look at doing so at this stage. That is because international investments have the potential of earning higher returns and can accelerate your wealth creation journey while strengthening your portfolio's risk-return profile.

Financial to-do list

- Assess your and your family's financial needs and buy life insurance. You can look into dual insurance schemes such as Unit-Linked Insurance Plans (ULIPs) that serve as both an insurance and investment product.

- Maintain an asset allocation of about 70% stocks and 30% debt securities.

- Undertake retirement planning and look into tax-saving instruments such as Public Provident Fund (PPF), ULIPs, National Pension System (NPS), etc.

In your 40s

Two things happen in your 40s. Your income is probably the highest while your responsibilities are also the greatest. You may have to think about your children's higher education or perhaps support your ageing parents. You might also want to shake things up in your career or personal life and maybe start a business or buy a vacation home. Retirement is closer too and the number of years you have left before your salary or professional income stops is also fewer. So, if you did not start building your retirement corpus in your 30s, you have to make that a priority now.

In your 40s, more than ever before, you have to ensure that your investments are meeting multiple goals. You need to continue to have investments that beat inflation such as stocks but you also have to look at debt securities to set up a regular flow of income. With a lower risk appetite and shorter investment horizon, you have to move towards investments with more stability even if moderate returns.

Asset allocation

Capital protection at this stage is just as important as capital appreciation, which is why your investment portfolio should have a more balanced allocation in your 40s. Look at having 60% in equities and at least 40% in debt.

Financial to-do list

- Reassess your health and life insurance needs. You might need to increase your sum assured in both cases and add certain riders to make your policy more comprehensive.

- Look at paying off all your outstanding debt because you don't want the burden of EMIs in your 50s and 60s when you are closer to retirement.

- Consider drawing up a will to protect your family's financial future and figure out how you'd like to distribute your assets.

- Increase your asset allocation in debt securities for a portfolio that is less volatile.