How should people under the age of 35 approach asset allocation?

Asset allocation for people below 35 years

Asset allocation

If you are reading about asset allocation, you may likely have already started investing. What you now need to know is if your basket of investments is well-balanced enough or not. Investments and savings should start almost as soon as you start earning. Typically, that would mean sometime in your 20s. Whether you have been investing for a few years, or are just about to start investing, knowing about asset allocation is a must.

As any financial advisor would mention, smart asset allocation will significantly relieve you from the stresses of market volatility. Quite simply, it is all about spreading your investment across different instruments. Which different instruments? That will be dictated by your risk appetite, life needs, financial goals etc. But the most important determinant is your age. This is why we take a look at what asset allocation would look like when the age of investor is below 35 years.

Asset Allocation Outline for People Below 35 Years

The assets that you invest in would largely fall under either the fixed income or the market-linked category. Although not seen strictly from its return perspective, insurance can be an asset under certain circumstances.

Market-linked products – A person below 35 years and planning to retire by 60 has roughly three decades worth of investment time. That is a great gestation period for your investments to grow. Equities are prone to fluctuations, caused by economic cycles, black swan events like the pandemic, war etc. However, with time they always bounce back to their former glory. Your long-term equity investment will overcome recessions and can be expected to ride the growth of the fast-developing economy that is India.  

Related: 10 factors that affect the Indian share market

Equity investments can be made in the form of direct investments in listed shares. Long-term stock portfolio management should include reliable stocks that are considered safe bets. Advantages of asset allocation in stock selection can be gained through equity mutual funds. Select your desired risk exposure and invest in funds that suit your growth expectations. For regular saving habits, you can also go for the SIP route to invest in equity funds. You must protect your equity funds during financial emergencies and refrain from untimely withdrawals. With SIP, you can pause during financial difficulty and resume once you overcome it.

For your age group, asset allocation in equity investments can be as high as 60 to 80%.

Fixed-income investments – Within mutual funds, you have the option of choosing debt funds and liquid funds as fixed-income options. Debt funds are free from market volatility and offer a steady return. Liquid funds can be maintained for emergency future cash needs, while debt funds can meet your medium-term goals. Debt funds can have credit risks too, so choose your funds carefully.

Investments like PPF, NSC, ELSS, FD etc. also offer fixed income, with each differing in tenure. You can allocate funds of your fixed-income investments into liquid, short-term and medium-term tenures.

Related: Learn more about debt mutual funds

Tangible assets – Tangible assets like gold and real estate are popular among investors of all ages. Due to its relative immunity from market volatility, a small investment in gold can diversify your portfolio. Besides, it becomes a must-have asset for us due to its ritualistic importance in our society. Real estate requires huge investments and often lacks price transparency. Nevertheless, a real estate investment can be a medium-term goal which you can plan through your fixed income investments.

Insurance – From an investment perspective, saving towards a pension cum life insurance plan at your age will give your money a larger time frame to grow. In other words, if you start early the contribution towards your retirement age in pension plan, or NPS for that matter, would be less of a financial burden. Also important at your age is health insurance. It will protect your savings in times of medical emergencies and cost a lesser premium due to your young age.

To conclude, asset allocation at your age can have higher investment risk exposure, given your long active life ahead. Therefore, you can allocate a large chunk of your asset for long-term market-driven growth. You need to complement it with investments that meet your immediate needs, and short-term and medium-term financial goals. You can diversify your portfolio with gold investment and protect your personal finances with adequate insurance, to complete your smart financial planning.

How to Create UNBEATABLE Asset Allocation

Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.

If you are reading about asset allocation, you may likely have already started investing. What you now need to know is if your basket of investments is well-balanced enough or not. Investments and savings should start almost as soon as you start earning. Typically, that would mean sometime in your 20s. Whether you have been investing for a few years, or are just about to start investing, knowing about asset allocation is a must.

As any financial advisor would mention, smart asset allocation will significantly relieve you from the stresses of market volatility. Quite simply, it is all about spreading your investment across different instruments. Which different instruments? That will be dictated by your risk appetite, life needs, financial goals etc. But the most important determinant is your age. This is why we take a look at what asset allocation would look like when the age of investor is below 35 years.

Asset Allocation Outline for People Below 35 Years

The assets that you invest in would largely fall under either the fixed income or the market-linked category. Although not seen strictly from its return perspective, insurance can be an asset under certain circumstances.

Market-linked products – A person below 35 years and planning to retire by 60 has roughly three decades worth of investment time. That is a great gestation period for your investments to grow. Equities are prone to fluctuations, caused by economic cycles, black swan events like the pandemic, war etc. However, with time they always bounce back to their former glory. Your long-term equity investment will overcome recessions and can be expected to ride the growth of the fast-developing economy that is India.  

Related: 10 factors that affect the Indian share market

Equity investments can be made in the form of direct investments in listed shares. Long-term stock portfolio management should include reliable stocks that are considered safe bets. Advantages of asset allocation in stock selection can be gained through equity mutual funds. Select your desired risk exposure and invest in funds that suit your growth expectations. For regular saving habits, you can also go for the SIP route to invest in equity funds. You must protect your equity funds during financial emergencies and refrain from untimely withdrawals. With SIP, you can pause during financial difficulty and resume once you overcome it.

For your age group, asset allocation in equity investments can be as high as 60 to 80%.

Fixed-income investments – Within mutual funds, you have the option of choosing debt funds and liquid funds as fixed-income options. Debt funds are free from market volatility and offer a steady return. Liquid funds can be maintained for emergency future cash needs, while debt funds can meet your medium-term goals. Debt funds can have credit risks too, so choose your funds carefully.

Investments like PPF, NSC, ELSS, FD etc. also offer fixed income, with each differing in tenure. You can allocate funds of your fixed-income investments into liquid, short-term and medium-term tenures.

Related: Learn more about debt mutual funds

Tangible assets – Tangible assets like gold and real estate are popular among investors of all ages. Due to its relative immunity from market volatility, a small investment in gold can diversify your portfolio. Besides, it becomes a must-have asset for us due to its ritualistic importance in our society. Real estate requires huge investments and often lacks price transparency. Nevertheless, a real estate investment can be a medium-term goal which you can plan through your fixed income investments.

Insurance – From an investment perspective, saving towards a pension cum life insurance plan at your age will give your money a larger time frame to grow. In other words, if you start early the contribution towards your retirement age in pension plan, or NPS for that matter, would be less of a financial burden. Also important at your age is health insurance. It will protect your savings in times of medical emergencies and cost a lesser premium due to your young age.

To conclude, asset allocation at your age can have higher investment risk exposure, given your long active life ahead. Therefore, you can allocate a large chunk of your asset for long-term market-driven growth. You need to complement it with investments that meet your immediate needs, and short-term and medium-term financial goals. You can diversify your portfolio with gold investment and protect your personal finances with adequate insurance, to complete your smart financial planning.

How to Create UNBEATABLE Asset Allocation

Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.

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