Life Stages & Investing

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At different stages in life, the objectives and needs are different.

During one’s earning life, money is saved from the current income to take care of the future. This is the Accumulation Phase.

The investment objectives in the 4 stages in Accumulation Phase are:

  1. Single, starting employment
    • Starting a saving habit
    • Emergency fund equal to at least 6 month’s expenses through bank deposits
    • Small beginning of equity investments through SIP
    • Start PPF, NPS accounts
    • Setting aside “margin money” for housing loan
    • Getting adequate term insurance & accident insurance
  2. Marriage
    • Monthly and annual budget of income, savings and expenses
    • Buying a house and getting a housing loan
    • Monthly instalments of housing loan build your house ownership
    • Family floater health insurance
    • Increasing equity fund SIPs
  3. Starting a Family
    • Changes in monthly budget
    • Buying a car and getting auto loan
    • Education funding for children – short term through debt funds, long term through equity SIPs
  4. Approaching Retirement
    • Children education goals nearing completion, responsibilities reduce
    • Income increases as career advances
    • Housing loan EMIs as percentage of income come down
    • Increase equity investments through SIPs and stock portfolio
    • Term insurance needs come down
    • Joint names and nomination in investments

After achieving financial stability, one has earned the “freedom to retire”. The income and cash flows from the accumulated wealth enable living with self-respect and comfort. The 5th & 6th stages in the life cycle fall in this Distribution Phase. The investments considerations are:

5.Retirement

  • Cash flows from existing investments used for expenses – systematic withdrawal plan
  • Golden period in life – when time, money & energy are all present
  • Discretionary expenses – such as travel – need to be budgeted
  • Portfolio partly shifts to fixed income investments, but equity still continues
    • Provision for health care expenses – top up on health insurance 

6.Succession & Estate Planning

  • Creating a will
  • Financial security for single spouse
  • Careful distribution after your life to next generation

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