ALWAYS GO FOR NEED-BASED INVESTING
· Investing, like most other activities in life, should be primarily based on your own needs.
· Identify whether your primary need is income or growth, for choosing your assets correctly.
· In reality, an investor builds wealth over a span of 35 years, from the age of 25-60 years, draws down from it and gives it away in the next 25 years.
1. When you are young and are beginning to earn
· Your need for income is high, due to several unexpected charges on your regular income, like marriage, buying a vehicle, job risks and costs of higher education.
· Go for income-generating assets, such as bank deposits, bonds, debt funds and saving schemes.
· These can be liquidated without losses and can supplement your income at short notice.
· Your investment in growth assets, such as equity and equity mutual funds, should be smaller in proportion and flexible in terms of your contribution.
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Don’t buy assets that will take away your income in the form of high premium, EMI, etc.
· Buy a property only if you have a stable job and your income is much higher than your expenses, leaving a large surplus to comfortably pay the EMIs.
2. As you age and settle down in your career
· As your savings capability increases, your investment in growth assets should move up.
· You should now add property, equity, and equity funds to your investments.
· Sticking to fixed deposits, provident fund, and such safe assets will hamper the growth and capital appreciation that your investments can enjoy.
· Your investing horizon is 15-25 years before you retire, and 3-5 years of underperformance of equity should not deter you.
3. As you near retirement
· By the time you retire, you should be living in your own home, without any debt.
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You should slowly reduce the growth assets and move towards income assets, such as fixed deposits, debt funds and saving schemes, to supplement your income after retirement.
· You should also have a corpus set aside to grow in equity assets for another 20 years into retirement.
· The rest of the money should be in assets that deliver regular income.
Need-based investing is focussing on your income, your savings, and your needs.