Reviewing an investment portfolio is a crucial aspect of financial planning. You need to change your asset allocation and realign them as per you goals in different stages of your life. Chokkalingam Palaniappan, founder, Prakala Wealth Management, a Chennai-based wealth management firm, offered model investment portfolios that are sutiable for thee different stages in life. He was speaking at the ET Wealth Investment Workshop held in Chennai on 15 November.
Chokkalingam Palaniappan broadly divided life into three stages when it comes to financial planning: the first stage is 21-40 years or High growth/ income stage; the second stage is 41-55 years or Moderate growth/ family stage; the final stage is 56 and above or Capital preservation/ retirement stage.
The income stage refers to the period when an individual has just started a career after college. Many people In this stage of life usually do not have much responsibilities. They are usually thinking of higher studies, moving to another job, marriage and settling down with family. In this stage, Palaniappan believes they have more opportunities to save.
“Income stage portfolio should predominantly contain equity mutual funds to grow your wealth. Use SIP route to invest and bring discipline to your investment approach,” says Palaniappan. “You must also look at buying health insurance. Also buy term insurance if you have financial dependents,” he adds.
Income stage portfolio can look like: Equity: 60%; debt: 10%; real estate: 30%.
Palaniappan also gave ideal investment choices for this stage. He said, “Investors belonging to this group can choose 5-6 schemes for diversification. Keep their emergency funds in ultra short duration or low duration fund. They can select good hybrid funds to save for their child’s higher education and a multi cap fund for their child marriage.”
“People should start saving for their retirement also by adding large & mid cap funds, small cap or a mid cap fund, based on one’s risk appetite,” adds Palaniappan.
Next is the family stage. In this phase, one might have settled down with spouse and kids, might have acquired own residence or would buy soon, earnings and expenses might have increased as well. Some common goals to fulfil in this stage could be funding kid’s education, family tours, upgradation of car or house.
Palaniappan recommended the participants at the workshop to continue with the health insurance and term insurance and an adequate emergency fund. “Towards the end of this stage you would be left with very less earning years, so I recommend people entering this stage to get in touch with a financial advisor to discuss any loopholes in their financial plan,” adds Palaniappan.
An ideal family stage portfolio can continue to contain high portion of equities. It can look like: equity: 50%; debt: 25%: real estate: 20%; gold: 5%.
Palaniappan recommended investors to become moderate with their investments by going with aggressive hybrid and multi cap funds. “Move to liquid or ultra short term funds two to three years ahead of your goals. Also, you should increase your SIP contribution to match rise in your income but your small cap and mid cap exposure can be brought down as per your risk profile,” said Palaniappan.
He also asked the participants to utilise bonuses to pay back home loans.
Towards the end of this stage, investors must revisit their portfolio and increase their allocation to debt. One can also start planning a will, he said.
The last stage is retirement stage when ideally one should become more conservative. “Don’t commit any major illiquid investments and be disciplined with your savings,” said Palaniappan.
By this time, your children would be out of their college and employed. They could be already married or nearing marriage soon. Palaniappan asked the participants to give utmost attention to their health cover.
He said, “Health cover is very important at retirement stage as the salaried people working in private sector will be out of their employer provided health cover post retirement. They can opt for a top-up health insurance plan.”
An ideal retirement stage portfolio can still continue to hold a portion in equities- preferably aggressive hybrid and multi caps. The portfolio allocation can look like: equity: 25%; debt: 60%; real estate: 10%; gold: 5%.
“Invest your debt portion in high quality ultra-short term and low duration funds along with other debt instruments. You can use your conservative hybrid funds and dynamic asset allocation funds for regular income post retirement. Use SWP to take out money at regular intervals,” said Palaniappan.
“If you are left with extra money, you can put it back into mutual funds through SIP mode,” he said.
However, Palaniappan cautioned the participants at the workshop that the portfolios discussed are for an ideal scenario. The allocations might change, based on the risk profile of an individual, he said.
