So you decided it's time to start investing in stocks. You may have already decided how much you of your money you are going to invest in stocks. Let's find out if you have done your homework right.
A lot of financial planners tell you this. What's your age? Subtract it from 100 and whatever you get should be the percentage you invest in stocks and your age is the percentage of your money to invest in safer instruments like debt funds, bonds, bank fixed deposits, etc.
I believe this argument makes little sense. Let us consider a few scenarios:
1. An 80 year old woman who has Rs 2 crore as her bank balance. She has no financial liabilities and is self dependent and her children are independent, in no need of support.
2. A 35 years old doctor who has Rs 1 crore bank balance and has a very predictable amount flowing in as monthly income.
3. A 20 years old student who gets Rs 3000 a month as pocket money and saves Rs 1500 each month.
The age formula loving financial advisers will likely say that old woman should invest only 20% in stocks, doctor should do 65% in stocks and perhaps the student should not look at stocks since he has very small amounts (or say that he starts an SIP which can be good advice by the way).
Now, the old lady has no upcoming big expenses, no emergency that may need her to have all her bank balance intact. There is no reason why the woman should not invest a large portion of her money in stocks. She can just take a certain amount monthly out of her investments for personal expenses.
The doctor is likely be in a lifestyle where he spends a lot of time working. He is not very likely to be able to spend time doing his own extensive research. Contrary to belief, he should not invest major amount of his investment in stocks.
The student on the other side has youth on his side and his choices depend on if he wants to take up stock investment as a life long habit. Even with his small amount a month, he can start investing and slowly gain understanding of the stock markets, learning even with failures as he has time on his side.
As you can see, none of the scenarios place complete emphasis on a person's age. Rather, the choices vary from person to person based on what their goals are, what their interests are, when they need their money. etc.
So when you decide on what amount to put in stocks, think of the following instead of your graying hair:
1. What are your major expenses? How far away are they in future?
2. Can your goals afford you to lose a part of your money? For ex, children's education is not something you compromise on but you can on buying a car depending on your own choices.
3. Are you single or married? what does your spouse do for a living, is he gold digger or not?
4. Will you inherit money or will you have to care for ailing parents?
5. What factors might hurt your career? If you work in real estate, a recession may leave you jobless.
6. Given your salary and your spending needs, how much money can you afford to lose on your investments?
7. If you are self employed, how long do businesses like yours tend to survive?
What this tells you in short is: be pragmatic and think of more practical things than formulas that decide your investment into stocks or safer instruments.
Free financial advice :)
Whenever you come across some advice, think of it in your own perspective and apply the scenario to yourself before believing it. You'll avoid a lot of investment potholes. For ex. a stock that the expert on TV says is good may be good or not depending on the factors he says are right or not and their impact.
A lot of financial planners tell you this. What's your age? Subtract it from 100 and whatever you get should be the percentage you invest in stocks and your age is the percentage of your money to invest in safer instruments like debt funds, bonds, bank fixed deposits, etc.
I believe this argument makes little sense. Let us consider a few scenarios:
1. An 80 year old woman who has Rs 2 crore as her bank balance. She has no financial liabilities and is self dependent and her children are independent, in no need of support.
2. A 35 years old doctor who has Rs 1 crore bank balance and has a very predictable amount flowing in as monthly income.
3. A 20 years old student who gets Rs 3000 a month as pocket money and saves Rs 1500 each month.
The age formula loving financial advisers will likely say that old woman should invest only 20% in stocks, doctor should do 65% in stocks and perhaps the student should not look at stocks since he has very small amounts (or say that he starts an SIP which can be good advice by the way).
Now, the old lady has no upcoming big expenses, no emergency that may need her to have all her bank balance intact. There is no reason why the woman should not invest a large portion of her money in stocks. She can just take a certain amount monthly out of her investments for personal expenses.
The doctor is likely be in a lifestyle where he spends a lot of time working. He is not very likely to be able to spend time doing his own extensive research. Contrary to belief, he should not invest major amount of his investment in stocks.
The student on the other side has youth on his side and his choices depend on if he wants to take up stock investment as a life long habit. Even with his small amount a month, he can start investing and slowly gain understanding of the stock markets, learning even with failures as he has time on his side.
As you can see, none of the scenarios place complete emphasis on a person's age. Rather, the choices vary from person to person based on what their goals are, what their interests are, when they need their money. etc.
So when you decide on what amount to put in stocks, think of the following instead of your graying hair:
1. What are your major expenses? How far away are they in future?
2. Can your goals afford you to lose a part of your money? For ex, children's education is not something you compromise on but you can on buying a car depending on your own choices.
3. Are you single or married? what does your spouse do for a living, is he gold digger or not?
4. Will you inherit money or will you have to care for ailing parents?
5. What factors might hurt your career? If you work in real estate, a recession may leave you jobless.
6. Given your salary and your spending needs, how much money can you afford to lose on your investments?
7. If you are self employed, how long do businesses like yours tend to survive?
What this tells you in short is: be pragmatic and think of more practical things than formulas that decide your investment into stocks or safer instruments.
Free financial advice :)
Whenever you come across some advice, think of it in your own perspective and apply the scenario to yourself before believing it. You'll avoid a lot of investment potholes. For ex. a stock that the expert on TV says is good may be good or not depending on the factors he says are right or not and their impact.
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