How much to Invest??
Spend as much time researching the investment as you spend time to earn
It is a particularly important question. We have the money; however, we don’t know in what percentage we should invest and at what age?? We will learn a simple formula.
30:30: This formula says that when we are in the age of 30, we should at least invest 30% of our income , which means you spend 70% of what you earn
40:50: When we are in the age of 40, try to invest 50% of what you earn
50:100: And when we are in the age of 50, we can invest 100% of our income….
How?? It is a very smart equation. Believe me if you scheduled the investment as per your age it starts giving a 2nd layer of income. Hence our expenses can be taken care and we can invest 100% of our income when you are in your 50s; as in a very disciplined way for about 20 years which is from 30 to 50 years of your age – you have invested as per the formula – and hence you will retire RICH as by investing 100% of what you earn is invested for 10 years before you retire….
Asset Allocation is proportionate to your age. The formula says asset allocation should be always considered 100 – Age calculation. Not necessarily this will be the best formula for Asset Allocation but to a great extent this will be fruitful
So what is 100 – Age ? This means If you have 100 Rs to invest and if you are 40 years old the according to formula 60 Rs , if we invest for our wealth creation that too preferably in Equity – It will be good
We have learnt about the investment in accordance with the age factors what we have. However it is also important that you should not blindly follow every thing ; as there are different risks also involved in doing the financial planning.
Let is understand bout Risk.
What are the kinds of Risk Profile?
If you want to invest in something with minimum risk and a guaranteed big return, Invest in Yourself.
It always depends on the nature of person how he would reciprocate in life, even in investing also it is important to consider what kind of nature we have. Accordingly, each individual has to plan the investment.
Let us see what kind of risk profile people carry. There are 3 types of risk profile of individuals Conservative, Moderate and Aggressive risk profile
1) A Conservative investor is someone who wants the money to grow but does not want to risk his principle investment. Conservative investors choose financial products that do not fluctuate much in value, such as Fixed Deposit or conservative mutual funds. This is a wise investment strategy when the investment money is needed soon or when the economy is in a major downturn. However, conservative investors miss out on explosive growth during times of economic prosperity. Usually, Conservative Investors are ok with less returns but fixed returns are preferred ,
2) A Moderate investor values reducing risks and enhancing returns equally. This investor is willing to accept modest risks to seek higher medium to long-term returns.
3) An aggressive investor actively looks for stocks with higher risk—but a chance for higher reward. An aggressive investor sometimes gets higher returns for taking big risks, but must actively monitor the stocks they invest in. Because the stock market (and the aggressive stock itself) can be highly volatile, keeping a sharp eye on those stocks is a must. Aggressive Investor is some one who takes more Market risk compared to other 2 types of Investors and hence have a higher probability of getting more returns compared to the Conservative and Moderate Risk taking Investors
I think we have got a better idea of what are the kind of risk profile individuals have. However, it is also important to know what kind of risk matters in financial planning.
