I am young, unmarried. Where do I invest?
YOU have probably just started working and have a relatively low income. Your spending needs are large as this is the first time that you have access to money you can call your own. You want to buy the latest gizmos and maybe even a car.
This is the phase when you can take maximum risks with your investments as you have no dependents or, for that matter, even other financial responsibilities.
Needs: Your immediate and short-term needs are probably to find a partner and get married. That would come with its share of financial decisions, such as expenses to run a home and maybe a dependent spouse if your spouse is not working.
In the medium term, you plan to buy your own home by taking a loan and that would mean saving up for a down payment.
Your longer-term goals could be to provide your children with a good education and also plan out for retirement.
In addition to these investments, you must also invest in insurance. Buying insurance when you are young will give you the benefit of lower premiums. Hence, consider buying a substantial term insurance cover that will serve your needs for the medium term. You can always consider increasing the cover later on.
Choice of investments
- Short term (less than 5 years): In the short term, you need to invest in instruments that provide liquidity and carry low risk. Investing in equities is not a good option for the short term since returns in equities are highly volatile and you run the risk of losing your money. Instead, for the short term, liquid mutual funds, bank fixed deposits and short term bonds prove a good option for you.
- Medium term (5-10 years): In the medium term, you may not require liquidity, but at the same time, you cannot take big risks either. Hence, you can look at debt instruments that offer a slightly higher lock-in and hence, offer higher returns too. For instance, National Savings Certificate (NSC), Kisan Vikas Patra (KVP), RBI bonds - all make for good investments as they provide returns of 8 per cent and have a lock-in of 6-8 years. You may also look at debt or even balanced mutual funds.
- Long-term (more than 10 years): Your long term needs are at least 10 years away. That gives you the chance to benefit from equities, which, although risky in the short term, are known to provide great returns in the long term. So equity mutual funds would be a good option to consider here.
Married and have young children, and expenses are rising?
YOU are married and have young children and your spouse is also working. Your expenses are rising suddenly and you may pile on credit card debts. But since you have two sources of income that leaves you with sufficient surplus for investment, after meeting all your spending needs.
You probably are planning to take a home loan soon and maybe already have a car loan. Given your income status, you are probably in a position to take risks even at this phase.
Needs: Your immediate short term need is to save up enough to make the down payment on your home loan. Moreover, you also need to consider buying term insurance, or if you already have it, to increase the cover.
In the medium term, you must save up for your children's education and also build an emergency corpus for medical needs. You must buy medical insurance for your family to cover medical costs.
In the long-term, your biggest goal is your own retirement. It is the age of nuclear families and no one except yourself will be paying for your retired years. You need to build up a sufficiently large corpus to enable you to continue to live the lifestyle that you did while you were working. Moreover, with inflation and increasing medical costs, your retirement is not going to be a cheap affair.
Choice of investments
- Short term (less than 5 years): In the short term, you need to invest in instruments that provide liquidity and carry low risk. Investing in equities is not a good option for the short term since returns in equities are highly volatile and you run the risk of losing your money. Instead, for the short term, liquid mutual funds, bank fixed deposits and short term bonds prove a good option for you.
- Medium term (5-10 years): In the medium term, you may not require liquidity, but at the same time, you cannot take big risks either. Hence, you can look at debt instruments that offer a slightly higher lock-in and hence, offer higher returns too. For instance, National Savings Certificate (NSC), Kisan Vikas Patra (KVP), RBI bonds - all make for good investments as they provide returns of 8 per cent and have a lock-in of 6-8 years. You may also look at debt or even balanced mutual funds.
- Long-term (more than 10 years): Your long term needs are at least 10 years away. That gives you the chance to benefit from equities, which, although risky in the short term, are known to provide great returns in the long term. So equity mutual funds would be a good option to consider here.
Only earning member in the family?
YOU are married and have young children and your spouse is no longer working. Your expenses are rising and you may pile on credit card debts. Since you have only one income coming in, you should be cautious with your expenditure.
After meeting all your expenses, you must set aside as much as possible towards investment.
You probably are planning to take a home loan soon and maybe already have a car loan. You cannot take too much of risk since you are the sole breadwinner.
Needs: Your immediate short-term need is to save up enough to pay the down payment of your home loan. Moreover, you also need to consider buying term insurance, or if you already have it, to increase the cover substantially since your spouse is not working. You may also consider buying disability insurance for yourself to cover any contingencies such as loss of job or prolonged illness.
In the medium term, you must save up for your children's education and also build an emergency corpus for medical needs.
You must buy medical insurance for your family to cover medical costs. In the long term, your biggest goal is your own retirement. It is the age of nuclear families and no one except yourself will be paying for your retired years. You need to build up a sufficiently large corpus to enable you to continue to live the lifestyle that you did while you were working. Moreover, with inflation and increasing medical costs, your retirement is not going to be a cheap affair either.
Choice of investments
- Short term (less than 5 years): In the short term, you need to invest in instruments that provide liquidity and carry low risk. Investing in equities is not a good option for the short term since returns in equities are highly volatile and you run the risk of losing your money. Instead, for the short term, liquid mutual funds, bank fixed deposits and short term bonds prove a good option for you.
- Medium term (5-10 years): In the medium term, you may not require liquidity, but at the same time, you cannot take big risks either. Hence, you can look at debt instruments that offer a slightly higher lock-in and hence, offer higher returns too. For instance, National Savings Certificate (NSC), Kisan Vikas Patra (KVP), RBI bonds - all make for good investments as they provide returns of 8 per cent and have a lock-in of 6-8 years. You may also look at debt or even balanced mutual funds.
- Long-term (more than 10 years): Your long term needs are at least 10 years away. That gives you the chance to benefit from equities, which, although risky in the short term, are known to provide great returns in the long term. So equity mutual funds would be a good option to consider here.
You are married and have older children?
YOU are in your mid-career. Your income is high, but expenses are higher as your children are growing.
It is also the time when a lot of maintenance expenses kick in on a regular basis, such as painting your home, exchanging old durables for new ones and so on. That apart, it is also time to concentrate on your own retirement plans.
By now you should also have cleared off most of your major loans like your home loan. If your children are no longer dependent on you, you may consider closing term insurance policies and leaving only so much as your spouse would need.
Needs: Your immediate short term need is your child's higher education or maybe your child's marriage expenses. You need life, health and disability insurance if your family is dependent on you.
In the medium term, you need to plan your own retirement. It is the age of nuclear families and no one except yourself will be paying for your retired years. You need to build up a sufficiently large corpus to enable you to continue to live the lifestyle that you did while you were working. Moreover, with inflation and increasing medical costs, your retirement is not going to be a cheap affair.
Choice of investments
- Short term (less than 5 years): In the short term, you need to invest in instruments that provide liquidity and carry low risk. Investing in equities is not a good option for the short term since returns in equities are highly volatile and you run the risk of losing your money. Instead, for the short term, liquid mutual funds, bank fixed deposits and short term bonds prove a good option for you.
- Medium term (5-10 years): In the medium term, you may not require liquidity, but at the same time, you cannot take big risks either. Hence, you can look at debt instruments that offer a slightly higher lock-in and hence, offer higher returns too. For instance, National Savings Certificate (NSC), Kisan Vikas Patra (KVP), RBI bonds - all make for good investments as they provide returns of 8 per cent and have a lock-in of 6-8 years. You may also look at debt or even balanced mutual funds.
- Long-term (more than 10 years): Your long term needs are at least 10 years away. That gives you the chance to benefit from equities, which, although risky in the short term, are known to provide great returns in the long term. So equity mutual funds would be a good option to consider here.
Where to invest for retirement?
There are various reasons why retirement planning has become imperative today: longer life span, increased medical costs, inflation etc. Even so, there are just a few takers.
Options available for retirement:
Equity: Traditionally discouraged as a retirement planning tool, it could give your investments a boost if you start early.
Insurance: This one is popularly used for retirement planning. Experts say it should only be used as a risk cover, and not as an investment tool.
Provident Fund and Public Provident Fund: The all-time favourite option. Our grandfathers believed in these low-risk schemes implicitly.
Fixed deposits: Safe and secure, but may cower under inflation with their low returns.
Mutual funds: Preferable one, this. There are the professionals whose experience and expertise will come handy.
Property: Totally ever-appreciating asset in the long run, especially with the real estate boom. Small catch: the liquidity concern. Not everyone has money on hand to invest.
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