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Life Stage Investing - How to Invest at Different Stages of Life?

20 July 2022

Every Indian home embraces saving as an aspect of its heritage and incorporates it into its daily lives. Whether we realize it or not, each of us begins saving money for our desired toy, dollhouse, sports watch, mobile phone, or dream home, among other things.

Life-stage saving is the formal name for this method of saving. The second and the most prominent step once savings start to come in is investing. As a result, investing is classified as life-stage investing. The result of investments made at various stages of life is this investing approach.

In general, investing phases of a person's life are divided into 4 main phases: the beginning of their career, getting married, becoming parents, and retirement. Almost all of these stages come with a specific set of obligations, and as a result, require a different level of investments.

This blog divides life into various stages and examines how to invest during each stage as well as how to make the jump between each stage easier.

4 Phases of Life Stage Investing

No. of Life Stage

Categories of Life Stage

Stage 1

Bachelorhood

Stage 2

Marriage

Stage 3

Parenthood

Stage 4

Retirement

Factors That Influence Changes in How We Invest

  1. Age

The most important factor affecting changes in one's investment decision is age. This has significant investment implications because your age frequently determines the amount of risk one can tolerate.

  1. Market Trends

The current state of the economy and the market may be the next factor. As the economic and market conditions have a significant impact on one's investment decisions in different investment stages.

  1. Disposable Income

Your disposable income is the amount of money you have left over after covering all of your needs and wants. At various phases of life, disposable income varies depending on factors like the size of the family, total income, etc.

  1. Savings 

Savings will have a direct impact on an individual's decision-making and investment preferences. It is common knowledge that the more money you save, the more you can engage in investments.

  1. Responsibilities

Your commitments and obligations make up the following factor. For instance, if you're single, you don't have a lot of obligations but this is not the case, as you approach parenthood or retirement.

Life Stages and How to Invest in Each One

As we mentioned above, there are four major categories of life-stage investments. Let us understand them here in detail-

  • Stage 1 – Bachelorhood

This stage is a big moment of your life as you finally have a job and are self-sufficient. You deposit your salary or business earnings into a savings account, and then use the money to pay for food, rent, transportation, and other necessities of life.

At this point, your primary financial requirement is to ensure that your income covers all of your expenses; otherwise, you risk going into debt. If your expenses exceed your income, you must either reduce your spending or find additional sources of income.

Initial Public Offerings (IPO), Equity Funds, Real Estate, Stocks, Mid-Cap Funds, and Small-Cap Funds are the most appropriate instruments of investments at this phase.

  • Stage 2 – Marriage

The next significant turning point in a person's life is marriage, which ushers in the subsequent phase of saving and investing. At this point in their relationship, couples want their own home, a car for the whole family, and to start a family. Couples shouldn't overlook long-term objectives like retirement planning even though these are short- or medium-term objectives.

You should start Systematic Investment Plans (SIPs) and make investments in Life Insurance and Health Insurance to prepare for a variety of short-term and long-term goals.

  • Stage 3 – Parenthood

You are expected to make plans for specific events in and for your parenthood like your children's education, their marriage, your retirement, etc. Some of the events in your life are sort of predetermined and for these reasons, it's crucial to begin goal-based investing before and while you enter parenthood. Decide on your investment vehicles after defining your goals and their time frame.

Lastly, once you start a family, it's crucial to get enough life insurance to safeguard your family from financial hardship in the event of someone's untimely passing. A high priority in your financial planning should also be providing your young family with adequate health insurance.

Debt Funds, Fixed Deposits, and Hybrid Funds would be the best investment options at this stage.

  • Stage 4 – Retirement

The majority of your prior investments start to pay off at this stage because life's greatest transition is retirement.  This stage also calls for a fresh, consistent source of income.

In this stage, you are expected to restructure the investment strategy of your portfolio because you won't be receiving a steady salary after retirement. The most crucial need after retirement is consistent income from your investments. De-risking your portfolio will protect it from the conceits of the stock market.

Overnight funds, senior savings plans, post office monthly plans, liquid funds, etc. are the best tools for this stage.

Investment for Retirement as the Main Goal

Maximizing the advancement of your investment while minimizing risk is the best and most effective thing you can do to achieve your ultimate goal, which is retirement. We use a strategy we call "Life Stage Investing" to achieve this investor life cycle.

Another name for it is a "glide path," which is a good analogy. If you consider retirement investing, it's comparable to taking a long flight. You're attempting to get where you need to be at the appropriate time.

If your investment grew too slowly, it would either take longer for you to reach retirement or retirement would arrive before your investment had reached the level you required.

Therefore, in terms of investing, as you get closer to retirement, we automatically slow things down at the right time by making your portfolio more conservative to ensure a smooth landing.

In order to achieve your ultimate goal of retirement, you should choose to invest in as much growth for as long as necessary while taking on as little risk as you can.

Final Word

In this blog, we have covered the 4 life stages in financial planning or the 4 stages of the investment life cycle. You should invest enough time and energy to make sure that your heirs' inheritance goes as smoothly as possible.

Remember that your investment decisions and strategies are mostly affected by the changing life stages. Each life stage has a specific investment instrument in which it is most recommended to invest in at that particular phase of life.

Early life investing and saving lay the groundwork for later independence and security, so start your investments now!

Happy Investing!

Disclaimer: The views expressed in this post are that of the author and not those of Groww.

Disclaimer

The stocks mentioned in this article are not recommendations. Please conduct your own research and due diligence before investing. Investment in securities market are subject to market risks, read all the related documents carefully before investing. Please read the Risk Disclosure documents carefully before investing in Equity Shares, Derivatives, Mutual fund, and/or other instruments traded on the Stock Exchanges. As investments are subject to market risks and price fluctuation risk, there is no assurance or guarantee that the investment objectives shall be achieved. NBT do not guarantee any assured returns on any investments. Past performance of securities/instruments is not indicative of their future performance.
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