When building an investment portfolio for your goals, do not focus solely on higher returns. Consider both the potential for growth that exceeds inflation and a structure that can withstand market volatility. The age-based allocations below are only a general starting guide, not personal investment advice.
Basic investment principles
1. Aim for growth that outpaces inflation
As the prices of goods and services rise over time, money loses purchasing power. To address this, increase the amount you invest and also invest it in asset classes with long-term growth potential. Whenever possible, do both rather than just one.
Use the inflation calculator to estimate what today's expenses might cost in the future.
2. Understand the importance of managing volatility
Although equity assets offer long-term growth potential, their value can fluctuate considerably in the short term. Selling in panic during a major decline can disrupt a long-term plan. It is important to choose an asset allocation suited to your goal, time horizon, income stability and ability to withstand losses.
3. Follow methods to manage volatility
- Do not neglect debt assets: Debt assets can generally provide more stability than equities, but they also carry interest-rate, credit-quality and liquidity risks. Allocate to them carefully.
- Diversify: Rather than buying equities in only one sector, country or company, spread investments across equity asset types and within each asset class.
- Rebalance: Market movements can cause your portfolio allocation to drift from its target. Review it periodically and rebalance toward a predetermined allocation.
Sample asset allocation by age group
The percentages below refer to the total investment portfolio for long-term goals. Plan separately for emergency funds and money needed within the next few years.
| Age group | Equity | Debt | Total |
|---|---|---|---|
| 20–29 | 80% | 20% | 100% |
| 30–39 | 75% | 25% | 100% |
| 40–49 | 65% | 35% | 100% |
| 50–59 | 50% | 50% | 100% |
| 60+ | 30% | 70% | 100% |
20–29: Make use of a long time horizon
For those able to withstand short-term volatility, a relatively higher allocation to equity assets may offer growth potential over a long investment horizon. At the same time, hold debt assets to help manage equity-market declines. Diversify rather than concentrating investments in one sector or company.
30–39: Maintain balance as responsibilities increase
Family, housing and other long-term responsibilities may grow. Consider each goal's time horizon and the stability of your income, and hold sufficient debt assets alongside equities. Gradually increasing the amount invested as income rises can help address inflation.
40–49: Combine growth and stability
Major goals such as retirement or education may be approaching. Consider how many years remain for each goal, maintain an allocation for longer-term goals, and gradually move money for nearer goals to less volatile assets.
50–59: Reduce risk as the time to use the money approaches
As retirement or other major goals get closer, increasing the share of debt assets may help protect against a sudden market fall. However, selling all equities solely because of age is not necessarily appropriate; money that will not be used for a long time may still need growth potential.
60 and above: Plan for both income needs and longevity
Investments may need to last many years after retirement. Plan separately for immediate expenses and long-term growth. Even with a lower share of equities, an allocation to growth-oriented assets may be appropriate to address inflation and long-term needs. Assess withdrawal needs and rebalance the portfolio periodically.
Use the retirement planning calculator to estimate retirement funding needs and the contribution of current savings.
How to adjust the allocation to your goals
- Age is only one indicator: Also consider the time to each goal, stability of income and expenses, dependants, debt, emergency funds and your emotional ability to withstand losses.
- Set separate time horizons for goals: Do not expose money needed in the next few years to long-term equity-market volatility. Gradually reduce risk for a goal as it approaches.
- Diversify equities: Aim to spread holdings across countries, sectors, company sizes and companies; avoid concentration in one area.
- Diversify debt assets too: Understand credit quality and duration risk, and avoid concentration in one type. Do not assume that an asset's value cannot change or that returns are guaranteed merely because it is called debt.
- Set a rebalancing rule in advance: Review once a year or when the allocation has drifted significantly from its target. Returning to the target, rather than continually buying assets whose prices have risen, can help manage risk.
Use the goal-based investing calculator to calculate the required monthly SIP based on the goal amount, inflation, current investments and time horizon.
Remember
These percentages are not a one-size-fits-all solution or a guarantee of future returns. Adjust them for your goals, time horizon, ability to bear risk and overall financial position. Before major decisions, consider seeking help from a qualified, SEBI-registered financial adviser.