Financial planning based on lifecycle investing

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Financial planning based on lifecycle investing
Lifecycle investing strategy that accounts for demographic factors such as age besides other crucial considerations enable an investor to channelize and allocate funds in a risk-controlled manner. At the same time, portfolio is created to optimise returns for the investor.

Accumulation stage in early and mid-career life: In the initial years of your career, when you have no liabilities at hand, you can invest your money aggressively and can put a substantial portion of your investment amount into equities ( As per experts, a feasible % that can be put into equities can be 80 minus your age). Than all through the middle years of your working career, you make an attempt to maximize your asset holding. Individuals during the period generally have a higher investment horizon and also forsee their earning potential to grow in the future, so they do not mind investing in high-risk assets.

It is also during this stage that you need to insure yourself against any future risk by buying a term cover plan for an amount not less than 8 to 10 times your gross annual income. Also, you need to secure a family floater health plan to meet your and family's health care needs.

In the mid-career stage, depending on your risk-appetite, you need to shuffle and rebalance your portfolio and include more debt-oriented financial instruments.

Consolidation past mid-career stage: After having accumulated ample corpus amount and even paying off all the outstanding debt, individuals in the stage look for capital protection. But with still a considerable investment time horizon, investor can still afford moderate risk. Also, investors can put their extra earnings for planning their retirement.

Retirement stage: During your sunset years, when expenses are met by either funds accumulated over the years for retirement or pension in case of government employee, you now give more importance to capital protection and hence say a complete no to equity investment that is indeed a risky bet.  At the same time, in order to avoid the real value of your savings and investment from turning negative on account of inflation, you can still consider betting on investment options that provide fixed returns capable of beating the rate of inflation (for instance, the newly introduced inflation indexed bonds). Then as suggested by experts, the excess of savings can be put for building some trusts that could indeed provide taxation benefits by lowering total tax liability for the concerned.


Story first published: Saturday, February 22, 2014, 10:57 [IST]
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