Why do You Need a Dynamic Financial Plan Based on Your Age?

By Sakshi Srivastava - 03 Mar 2022 Last Updated: 18 May 2022
Why do You Need a Dynamic Financial Plan Based on Your Age?

An investment allows you to put your money to work for you. Your savings, even if they earn interest, will not be enough to combat inflation in the long run. The manner in which you invest makes a significant difference in obtaining a higher return. However, you must have a thorough understanding of the UAE market and conduct thorough research. Your investment strategies and asset allocation play a significant role in determining your net worth after retirement. New investors are frequently perplexed about the appropriate age for investing and the strategies to employ.

Investing does not follow any hard and fast rules. As you grow, so should your investment strategies. A young investor is willing to take on more risks, but he or she is unfamiliar with the market. Similarly, a seasoned investor has a better understanding of the market but less time to reap rewards. A wise investor recognizes his or her own needs and risk tolerance, and then plays accordingly. In order to achieve the desired returns, your investment strategies must be age-appropriate. The following article provides information on the best investment strategies in UAE based on age.

Allocation of Assets and Investment Strategies

Before making investments, new investors should understand the significance of asset allocation. Proper asset allocation knowledge will assist them in developing age-specific investment strategies. There are various asset classes, such as stocks, securities, bonds, and so on, each with its own level of risk and return, as shown below.

Stocks

 Stocks, also known as equities, are issued by a company to raise funds for its operations. Because of higher returns and exponential growth, stocks have outperformed other investment categories over time. They are more risky and more vulnerable to market fluctuations.

Bonds

 Unlike stocks, bonds are traditional loans made to investors with a fixed return guarantee. State and government organizations typically issue bonds to fund projects and infrastructure development.

Commodities

 are raw materials such as minerals, metals, agro-products, and so on, in which an individual can invest to make significant profits. Commodity trading is one of the most traditional forms of investment.

Real Estate

For the last 50-60 years, real estate has been a popular investment vehicle. It includes a number of sub-categories, such as buying and selling and flipping houses. Investing in real estate is less volatile than investing in stocks and bonds.

Cash and Equivalents

Cash and Equivalents are short-term investment vehicles that offer low returns and lower volatility. Cash and equivalents include bank deposit certificates, treasury bills, corporate commercial papers, and other financial instruments.

Various Investment Options

In Addition to Various Investment Options, there are a few saving Schemes that Offer Higher Returns and are Risk-Free Ways of Accumulating Wealth.

Goal Based Savings Schemes

 A goal based savings scheme is a kind of deposit that offers a higher interest/profit rate than a standard savings account. Your investment, like a fixed deposit, is locked for a set period of time, and you receive interest plus the principal amount at maturity. Goal-based savings plans are ideal for individuals with a low risk tolerance and the elderly who plan to retire within the next decade.

Mutual Funds

 A mutual fund is an equities investment that is made indirectly. These funds are considered to be safer than stock investments and provide a reasonable return. Because mutual funds invest in stocks, there are risks associated with them. You can invest your money in a lump sum or through a systematic investment plan (SIP). A SIP requires you to pay a portion of your projected investment into mutual funds each month. Mutual funds are ideal for people who have a low risk tolerance and want a safer investment option with decent returns.

Recurring Deposits

These deposits function similarly to fixed deposits in the UAE, but you do not have to invest your funds in a lump sum. You must pay your funds in fractions over a set period of time, just like a systematic investment plan. At maturity, you will receive the funds plus all accrued interest. A recurring deposit, like a fixed deposit, is one of the safest investment options. These are ideal for individuals seeking safer investments and wealth generation with a specific goal in mind.

The performance of your investment is primarily determined by the state of the economy. With the rise and fall of the economy, each investment category exhibits slightly different behavior. An experienced investor selects the appropriate investment vehicle to maximize returns while minimizing losses. When the economy improves, investors shift their assets to stocks, which offer a higher return than the other categories. In the event of an economic downturn, on the other hand, they shift their assets into safer investment options such as bonds. Because the market is volatile, it is also important not to put all of your money into a single type of investment. Diversification helps to build a strong portfolio and prevents you from losing all of your money at once. The order in which your investments are placed in your portfolio determines your returns; thus, you must plan in accordance with your objectives and age.

Investment Strategies in the UAE for Different Age Groups

A young investor's investment strategy differs from that of a retiree. Furthermore, personal circumstances can have an impact on your investment strategies. It is preferable to have enough liquid cash on hand as a backup in case you lose money in the market. While a young investor can afford to take risks by investing in stocks, someone with a dependent family requires financial security and would prefer bonds over overstocks. The following are the best investment strategies based on age.

For Young Investors between the ages of 20 and 30

In general, young investors have few responsibilities and can be aggressive when it comes to investing in stocks. Furthermore, they can invest in retirement plans that provide exponential growth over time due to the power of compounding. It is up to you whether you want to play safer or riskier. They should invest in stocks 70% to 90% of the time. With the remainder, they can invest in bonds, purchase a health insurance policy, or make a goal-based fixed deposit.

Because investors in their twenties have more time to recover from losses, they can take on the most risk. Investing in retirement plans can also yield a high return. All they need to do is define their risk tolerance and financial objectives.

For Investors between the Ages of 30 and 40

Investors between the ages of 30 and 40 are more career-oriented and concerned with financial security. Individuals in this age group, on average, have spouses and children, and their investment strategies must account for them. Although you will earn more than in your twenties, a significant portion of your earnings will go toward family expenses. Your risk tolerance decreases, and you must deviate slightly toward safer investment options. You can still benefit from the power of compounding at this age, and retirement plans can be a wise investment.

Investors in their thirties should concentrate on saving for retirement. They should reduce their risk appetite and shift to safer financial securities options.

For Investors between the Ages of 40 and 50

Investors between the ages of 40 and 50 should priorities safer investment options and savings. They must be serious about financial management because they must manage larger expenses such as college fees for their children or marriage expenses. Loss of funds at this stage can be devastating and detrimental to their future plans. As a result, they require more financial security. Furthermore, because their age makes them vulnerable to critical illnesses, they can choose health insurance that includes critical illness coverage.

They still have some risk in the stocks with 10-20 years of employment remaining. They must, however, plan in accordance with their situation and anticipated expenses. Obtaining a fixed deposit in the UAE can help parents pay for their child's education or marriage. They can also choose a recurring deposit with systematic investment plans that will not put a strain on their finances.

For Investors between the Ages of 50 and 60

Individuals between the ages of 50 and 60 are on the verge of retiring. They must concentrate on funds that are stable and earn low returns, such as money market and bonds. Riskier stocks can deplete the funds that have been amassed over time. Furthermore, because of the shorter investment tenure, various goal-oriented savings plans will be less beneficial. Stocks (equities) are still an option if you have enough liquid funds and are willing to accept losses. You can use your market knowledge to earn additional profits.

For Investors between the Ages of 60 and 80

Investors over the age of 60 are either about to retire or have already retired. They must priorities income over growth. They can invest in stocks or mutual funds that pay out dividends to ensure a steady income. Increasing bond holdings or fixed deposits for shorter terms is also a better option because it is more secure and provides higher returns than savings plans. They can shift to liquid instruments to manage health-care costs in an emergency and invest a small portion in stocks for financial growth.

Purchasing life insurance for people aged 60-80 is not a good idea because they are less likely to support their families financially. Senior citizens, on the other hand, require health insurance and should have a pre-existing health insurance plan.

Conclusion

Individuals, whether new or experienced, require dynamic planning to achieve their full potential. To ensure proper asset allocation, it is critical to shift investment strategies based on age. You should make an effective asset allocation based on your financial goals, risk tolerance, and age to ensure long-term financial growth. For more information on other related aspects, feel free to connect with us on our website as well.

Financial planning is made simple and hassle-free with Dhanguard in Dubai, UAE. We provide you various financial plans with the minimum possible trouble.

Investments is made simple and hassle-free with Dhanguard in Dubai, UAE. We provide you various investment options like Index Fund, Gold, Mutual Fund, Stocks, SIPs, Bonds, Fixed Deposite, Sukuks with the minimum possible trouble including paperwork & payments.

By Sakshi Srivastava

03-Mar, 2022

Investments Related FAQ

Frequently Asked Questions

  • Why should one Invest?

    Earning money now is insufficient, since it may not be enough to meet life's financial objectives. As a result, it is critical to spend money. Saving money in the bank is the same as giving up an opportunity to make money. It is crucial to invest carefully in the different plans available on the market, choosing the one that is ideally tailored to your objectives.

  • What is the eligibility to buy Investment Plans?

    With new technologies and goods, the investment market is rising by the day. The conditions for investing in different forms of investment instruments differ depending on the providers in the UAE.

  • What are the best Investment for Expats in UAE?

    Expats can invest in stocks, bonds, real estate, cash, UAE mutual funds, or other forms of funds in the UAE.

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