Our financial goals determine our future expectations of increase in wealth. An investor goes through multiple phases which varies on his degree of risk aversion, right from the moment he starts earning till he retires. These plans can be divided into four broad categories:
1) Accumulation Phase: This phase begins just after graduation, wherein the investor can take maximum benefit of compounding. The investor is less averse to risk because capital preservation is not a concern for him. Expenditure will be high because he will spend more on capital assets. The first investment should be in life insurance, as you have enough lidquidity at that time. Moreover, it will be compounded throughout your life and will secure the future of your family. Apart from that, you can invest in aggressive stocks, i.e., small company stocks, riskier stocks that pay huge returns. This phase lasts till 30-35 years.
2) Consolidation Phase: The next 20-25 years, the risk aversion of the investor increases. Capital preservation is still not a major goal, but due to increased risk aversion, it is better to invest in bluechip stock, equity mutual funds, income generating schemes such as bonds,etc. Also, investment in fixed deposits and health insurance is recommended.
3) Spending Phase: This phase starts once an investor is towards the end of his career, where his income is at its peak and he starts making post retirement plans. The risk aversion is maximum and you would not want to invest in the stock market, but would rather invest in Government securities, fixed deposits and debentures.
4) Gifting Phase: This is when the investor has retired and has surplus funds. He makes no investments, or very less investment but starts giving back to his country by making charity donations or gives back to his family.
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