I am 24yrs old. I want to know what should be my ideal asset allocation. I have a high risk appetite. Please suggest.
I am always pleasantly surprised by youngsters like you who express their desire to invest at a very young age. Brilliant start!
With my past experience I have mostly seen youngsters like you tend to have a high risk appetite. This is generally because there are comparatively less responsibilities with you at this point of time.
When any investors (not just youngsters) suggest that they have high risk appetite, all I would think of is equities…Investment is equities have potential to give high returns in the long run. However, it is also an asset class which has a high risk
. It’s best to remember the adage - “higher the risk, higher the gain”.
When you are at 24, strange though it may sound, you could start saving for your retirement even though you might feel it’s a long way to go, as other important financial responsibilities could start coming your way very soon, like buying a car, marriage etc.
It is always suggested that you start an SIP – Systematic Investment Plan in equities by investing in a diversified equity mutual fund scheme. SIPs can help you balance out the risk factor and also make you a disciplined investor. Over a period of time, you can earn significant returns from your small initial investment, thanks to power of compounding. Therefore while Inflation could play spoil-sport the power of compounding will help your money grow to a large amount by the time you actually need it.
It is also important not to keep all your eggs in one basket. A sound asset allocation strategy ensures your portfolio is well-diversified and aggressive enough to meet your financial goals. Allocate a small percentage of your savings in debt and gold too.
Other than your investments there are some other financial factors you need to consider like maintaining an emergency fund, get life insurance and health insurance, etc. Moreover last but surely not the least make it a ritual to regularly review your investments. This will help you understand if your investments are growing as they should or if you need to change your investment strategy.
To help you further it might be useful to get a financial planning done for yourself which could go into more detailing on your cash flow needs and resources over the next few years.
Subbu's Solution is authored by I. V. Subramaniam. I. V. Subramaniam is a director of Quantum Asset Management Company Private Limited.
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