Late in investing? Here’s what you should plan

If you’ve been delayed entering the world of investing, there are ways to make the most of the time you have on hand to secure your future and build a corpus for a comfortable post-retirement life.

Have a disciplined and systematic approach and use schemes with the power of compounding. (File Photo REUTERS)

By Deepak Jasani

Start Saving Early. We’ve heard these are 3 words countless times before, and they hold true even today. But life seldom goes as planned, and often circumstances don’t allow us to start investing as early as we would have liked to. Fortunately, while investing for future goals, another mantra holds true as well, which is “better late than never.” If you’ve been delayed entering the world of investing, there are ways to make the most of the time you have on hand to secure your future and build a corpus for a comfortable post-retirement life. Here are some tips for you to consider.

Starting in Your 30s

While we understand that everyone’s circumstances are different, there are some common things that hold true for us all. Let’s assume that by your 30s, you have some years of professional experience, acquired valued skill sets, and have a more or less strong footing in your career. You might be in a mid-senior position and climbing the income ladder steadily. Considering that you are likely to retire by 60, you have a solid 25-27 years to build a good nest egg that can take care of your children’s education and marriage, foreign vacations for the family, owning a home and a new car, or even starting your own business. The key is to invest smart by diversifying your portfolio and then giving it time to grow.

Here are some ways to diversify your portfolio:

– Equities and mutual funds: Consider investing in equity funds like ELSS (Equity- Linked Savings Scheme), which offer higher return potential. ELSS are tax-saving mutual funds, in which you can invest through a single lump-sum payment or take the Systematic Investment Plan (SIP) route. However, these investments are riskier than fixed-income schemes like Bank deposits or PPF. Consider building a strong portfolio with 70%-80% holdings in stocks and mutual funds if you are looking for higher returns and can stomach market fluctuations.

– PPF: Public Provident Fund or PPF can offer you deductions of up to Rs 1.5 lakhs on your taxable income in a financial year under Section 80C. It yields taxfree interest income that keeps changing from quarter to quarter in a narrow band. It is a low- risk, sound strategy for the long-term horizon.

– Alternative fixed-income schemes: Many other investments can offer capital protection, low-interest income, and tax benefits like debt funds, tax-saving FDs, and more. It could be useful to have 20%-30% holding in debt instruments.

– Insurance: This is the right time to invest in appropriate life and health insurance, to provide your family financial coverage for the future.

Have a disciplined and systematic approach and use schemes with the power of compounding. Consider increasing your investments whenever possible.

Starting in Your 40s

In your 40s, you are likely to have settled into your career. You need to evaluate your financial responsibilities now and start planning for your retirement as soon as possible. Higher earnings translate into higher living standards and expenses, which might upset savings and investment plans. It is wise to plan the budget in advance and keep track of

– Equity and mutual funds: Consider allocating 60%-70% in stocks and mutual funds. Given the duration of the investment, mutual funds can serve you well. Pension
plans provided by mutual funds can allow you to build a retirement corpus, as well as benefit from tax savings.

– PPF: If you have a low-risk profile, PPF investments could be a good option. You might also consider the Sukanya Samriddhi Yojana, for your young daughter, and save for her education and marriage expenses. PPF and NPS (National Pension Scheme) are great tax-saving investments too.

– Debt instruments and bonds: Consider 30%-40% asset allocation in debt instruments and bonds for stable returns.

A major goal at this stage of life is to become debt-free. Work towards repaying your loans and continue your investments in insurance to minimise future financial risks for your family. Time flies, and it is essential to decide on your retirement corpus. This is important if you plan for early retirement.

Starting in Your 50s

Your 50s are the pivotal years on the road to retirement. If you haven’t started investing yet, there are still ways to rectify the situation. These are your peak earning years, so tax-saving and planning need to figure on your list. PPF and NPS are some instruments that are safe investments, offer tax benefits and reliable channels to build income in the long term. But, make sure you have a good mix of equity as well in your portfolio to increase your return potential. You still have 10 years to retire. So, you could start with equities, and shift to safer options later.

– Equity and mutual funds: Consider 50%-60% allocation in equity mutual funds. Around 40%-50% allocation can be made in debt instruments and bonds.

– Revisit your retirement plan: If you already have a portfolio, consider re-evaluating it now. Many of you might be already paying a hefty amount in college tuition for your children. So, it could be wise to consider investing in new schemes to build funds for retirement. It doesn’t have to be risky assets. You can shuffle equity and debt allocations to reduce the risk component.

– Consider insurance riders: Getting riders to your insurance plans is a great way to reduce future financial burden. Opt for plans like terminal illness benefit, to protect yourself and family members against rising healthcare costs. It’s imperative to not take any new loans at this stage, and plan towards increased savings. Also, it’s wise to set expectations with children to avoid future surprises or disappointments.

At all costs, plan for financial independence, to lead a healthy, happy and comfortable life, especially post retirement. What you decide and execute today could shape the course of your life in future. So, plan smart and start investing ASAP.

(Deepak Jasani is a Head of Retail Research at HDFC Securities. Views expressed are the author’s own. Please consult your financial advisor before investing.)

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