Know how to Create the Right Portfolio and Asset Allocation by Age

Mar 21, 2018 | 8 months ago | Read Time: 2 minutes | By iKnowledge Team

Relook your asset allocation according to your age; this makes a huge impact on your investments.          

Today, you’re young, fit and energetic. You love adventure sports activities like bungee jumping, mountaineering, and river sports. But you may not be able to keep up with the same lifestyle when you hit 50. Applying the same analogy to your investment portfolio, you also need to relook asset allocations according to your age. For instance, consider a higher proportion of risky financial assets early in life and reduce it as you grow older. Let’s look at how you can mix your portfolio based on different age groups:

Asset Allocation for Youth (20-35 years)

If you belong in the 20-35 age group, you may have a greater risk appetite. At this stage, your portfolio must include more of equities and less of bonds and corporate deposits. A higher exposure to equities can earn you better returns during this phase.  Even though, equity returns depend upon market conditions, you may be able to afford the risk factor, given the few responsibilities that come with this age.

Asset Allocation for Middle-Age (36-50 years)

If you’re aged between 36 and 50, then your risk-taking ability begins to get lower. You may have a family to look after, purchase a home, save for children’s higher education, among other responsibilities. Here, you could consider investing in moderate, moderate-hybrid, aggressive or aggressive-hybrid funds. 

It would also help to have a comprehensive insurance cover at this stage. This could include term insurance and health insurance plan covering family members. Both provide financial protection to your family in the event of your death.

Approaching Retirement

As you approach 50, your risk taking ability decreases substantially. You must now avoid high exposure to equity investments and focus on debt instruments. Also, your investments in stocks could reduce gradually till you reach retirement. This approach will help you save a considerable corpus for retirement.

Golden Years

Once you’ve cross 60, your salary income may cease. You now need a fixed income to cover all monthly expenses associated with your lifestyle. At this stage, your portfolio could contain debt instruments for a stable income in later years. Besides, your capital remains protected due to low risk associated with these instruments.

Aegon Life offers a Unit Linked Insurance Plan (ULIP) known as the iMaximize Plan with tax benefits. It gives you the option to select from six different funds that contain varied proportions of debt and equity instruments and the benefit of switching your investment from one fund to another. The ULIP comes with an insurance cover that your family would receive in the event of your death.

Conclusion

Change is the only constant. With age, your needs, goals, and risk-taking abilities change. This is why your portfolio should be realigned as you move from youth to middle-age to retirement. Choose a ULIP instead of multiple investment avenues. You can realign the investment portfolio as you age.


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