I am now 40 Plus. How should I invest?

There are a lot of quotes on the age of forty that you will read and hear -

              40 is the new 30!

              Life begins at 40. Up until then, you are just doing research.

              At twenty years of age, the will reigns; at thirty, the wit; and at forty, the judgement.”

Some quotes make you feel good and some make you feel old. But what will really be advantageous for you is a proper financial plan that can keep you away from money woes. Have you put a plan in place to make sure your retired life will go smoothly without financial hiccups? If you are 40 and do not have a financial plan, it is imperative that you make one. Different investments in different proportions are useful at different stages of life. At 40, you are closer to retirement. You may have grown up children or old parents. You might want to start doing something that is close to your heart rather than spending your days in the office. These things entail a tweak to the financial plan if you have any or the drafting of a financial plan that will make your financial status comfortable so that you can follow your true calling.

Some of the financial rules to follow -

Pay off personal debt like personal loans and credit card dues. There is no point in wasting money on paying high interest on these loans.

Determine how much will you need for a comfortable retired life. It should include your living expenses for the next 30 years adjusted to inflation, your financial goals (building a house in your hometown, children's education etc.). It should also consider that medical expenses might go up as you grow older.

It is important to take care of all your possessions – car, home etc. as major repairs or new purchases at this stage in life will make a dent in your savings.

Here ares some investment options that you can look at -

1) Equity based assets – Earlier the rule was to invest the proportion equal to 100-(your age) in equity based assets. But considering longevity, returns from equity vis-a-vis other investments, this has been modified. It is advised to invest a proportion equal to  110 – (your age). So if your 50 years old, you can invest 60% in equity based assets. If you have a higher risk appetite, 120 can be considered instead of 100.

2) Gold – Equity based investments have a higher element of risk compared to other assets. In order to hedge against risks, it is good to have some part (around 20%) of your investment portfolio in gold  as they are inversely correlated to equity. Nowadays there are options to invest in gold without really buying and storing gold physically like Gold ETFs and E-gold.

3) Debt based assets – About 15%-20% of your investment portfolio should be in debt based instruments like debt mutual funds and bonds.

4) Short-term investments – There are many options for short-term investments. You can invest in liquid mutual funds or company fixed deposits. Liquid mutual funds have no lock- in period. You can sell the fund units anytime without incurring any charges. They give optimum returns at low risk and high liquidity. Company FDs are rated by credit rating agencies. It is better to invest in those that have a high rating. Instruments with a CRISIL rating of FAAA or FITCH rating of TAAA are considered as highly rated company deposits that can be considered for investment.

When you are in your 40s, you still have the enthusiasm and energy for challenges and at the same time are wise with many experiences behind you. You should make your investment plan such that your present life is comfortable and you will have less worry on the financial aspects of your retired life.