Investments should be made based on your risk profile

The earlier you start the more time you will have to plan for other goals that will take their course as your life evolves


Ramesh Pathania/Mint
Ramesh Pathania/Mint

I am 32 years old and my wife is 29 years old. Our combined monthly income is Rs.1.3 lakh, out of which the expenses account for of Rs.45,000. We want to start planning for our retirement together. How should we go about it? We do not have children, and do not plan on having one for the next few years.

—Chandresh Gupta

It is good to start planning for your financial goals in advance. And for the few goals which are bound to happen, i.e., retirement, it is always prudent to plan for the same. The reason why we delay or do not plan for these goals is either because we cannot relate to them (for instance, planning for retirement immediately after starting your first job at 25 years is not easy for all), or we just procrastinate as we believe that there is ample time left for it. Well, there could be enough time, but the earlier you start the more time you will have to plan for other goals that will take their course as your life evolves. More importantly, you get the benefit of power of compounding, i.e., where the interest starts earning interest, if you start planning and investing early in life.

Currently, you have good potential to save and you should use it to your advantage. Try to save to the maximum of your ability. The investments should be made based on your risk profile. Since you have no short-term goals at the moment and with age on your side, equity should form a part of your portfolio. The asset mix between equity and debt will be a factor of how much risk you are willing to take. Your ability to tolerate volatility as well as negative returns over prolonged periods of time becomes critical in deciding the same. You should start investing in mutual funds via systematic investment plans. With your income being fixed, it can be started on a monthly basis.

Further, within each asset class diversify your portfolio. Equity can be spread between large-, multi- and mid-cap funds. You can even have a balanced fund that has both equity and debt as part of its portfolio.

In the debt portion of your portfolio, you should spread your investments across short-term (this also offers you liquidity benefit just in case you need money) and long-term bond funds. Within the debt portfolio, you can also open a Public Provident Fund account that will form part of the long-term bond portfolio.

Also ensure that your insurances are in order—life and health. Both of you can go for a term plan and health insurance. Even if your employer is providing health insurance, it is good to have an independent health insurance policy.

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