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How to invest effectively in your forties

Have you crossed forties? Now it's time to take a look at your investment. You have to make provision for your children's education/marriage and your post-retirement life. You have to provide for medical emergencies. How will you do it? Read this article to know.

You have reached the wrong side of forties. You have left your Graduation days long back. You have joined service and started earning more than fifteen years ago. Now you are married and father of a child/children. The days of retirement are not very far. You have to plan for your children's education and marriage. You have to plan for your retired life. You have to plan for medical emergencies and old-age ailments.

Since ages, the financial experts have been stressing upon the needs of starting investment immediately after earning. And most of the young men and women have been ignoring the experts. You have been one of those. But now, you have crossed forty, you are planning to save and invest. But what to do? How to do? Let's make a sincere effort.

Stop being extravagant

No, I am not telling you to be a miser. But you have to drastically cut the unnecessary expenditure. Stop dining in expensive restaurants in every alternative days. If you can't stop the habit of taking restaurant food, order the food in your residence. Reduce watching movies in expensive cinema-halls/multiplexes. Stop purchasing popcorn and cold drinks at throat-slashing prices. Watch movies with other family members in your residence. Stop buying two-wheelers and four-wheelers in every three years. Give stress on the maintenance of the motorbike and car instead. Pay your credit card dues on time and avoid penal interest. Minimize use of credit cards. Bring financial discipline in your life. Although saving and investing are not same, the first step of investing is saving.

Take anticipatory action for medical emergencies

Again this is not investing, but this is also a very important step towards investing. Medical emergency can eat away the investment of a family. So, it is very much necessary to take care of medical emergencies in advance. You must take a family floater health insurance of adequate amount covering all members of your family. This will take care of the medical needs of the family members including you. It will also help you to start investing in a more confidently.

Don't totally ignore Provident Fund and other fixed-income instruments

Provident Fund is always a very important investment instrument. It gives huge benefit in tax. The invested amount, the interest and the final amount are always tax-free. Moreover, the provident fund proceeds can't be attached by any Court of Law. Other fixed-income instruments like Kishan Vikas Patras, Bank and Corporate Fixed Deposits, Bonds, Post-Office Savings Schemes provide a stability and surety of returns to the forty-plus investors, who are not in a position to take risks.

Avoid direct equities: Invest in mutual funds instead

Thanks to the experts, all of us know that investment in equities gives maximum return in the long run (of ten years or more). But at the same time, it is also known that direct equity is not everybody's cup of tea. Very few of us can effectively analyse the financial performance of the companies, various ratios, market movement, management plans, etc. So, common investors may not be that successful in the equity market. So, you should opt for the next best thing. Invest in one or more good equity-based mutual fund or equity-based hybrid funds. By paying a negligible amount of fee, you will get good professional acumen working for your investment. Moreover, investment in equity mutual funds is also tax-free after one year, just like investment in direct equities.

Explore index funds and ETFs to save cost

No you have decided to invest in equity mutual funds, you must try to cut the investment cost, i.e., the fees charged by the mutual fund houses. The experts always suggest passive investing to cut cost. The way is investment in index funds and ETFs. The index funds follow a pre-determined index. ETFs are also linked to particular indices. The cost of investment in these funds is least among the mutual funds. The forty-plus investors must choose a suitable index and start investing in related ETF or index fund.

Summing up the discussion

Although you have crossed forty, you still have more than fifteen years of service/earning capacity. So, utilise this advantage prudently. Reduce unnecessary expenditure, take adequate cover to meet medical needs, invest in equity-based mutual funds and tax-saving fixed instruments and cut investment cost by investing in index funds and/or ETFs. You will definitely take care of the needs of your family members and yourself.

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Author: Natarajan11 Jun 2018 Member Level: Gold   Points : 4

A nice write up about investments. If we are thinking about investments at 40, then we are already late. Experts suggest starting to save and invest by the age of 25-30 years.

Three of the most important indirect investments at the age of 40 according to me are-

1. Health and fitness: only if we are fit and healthy can we look forward to reaping the benefits of our savings and see our children do well in life.

2. Medical insurance: the cost of private healthcare is beyond the reach of many people and medical insurance is a valuable tool.

3. Life insurance: a term policy is one of the best investments one can make for the sake of the family. Early the age, lesser is the premium we have to pay for these.

Most forms of investment for any individual and family depends on the risk appetite and the amount they can set apart. Investments should be split or spread across mutual funds, smart land purchases, gold etc.

Whatever investments we make, it is wiser to discuss with our tax consultants, let our spouses or family members know about it and lastly have nominees for every investment we do. Investment is not a one-time affair, it needs to be regular (SIP or buying ETFs, bonds etc) and the long-term plan needs to be reviewed periodically based on our needs and global trends. For instance, real estate was one of the best sectors a few years ago, now it has fallen back in many places.

Author: dipti07 Aug 2018 Member Level: Silver   Points : 2

It is possible that some of us missed the early investment bus and this article is a directive to not lose heart and still begin the race to financial security and freedom. I like the suggestion of ETFs and Index funds. We can be rest assured that since markets do have performance cycles our funds too will benefit from the same. A good article giving practicable suggestions.

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