Monday, June 25, 2007

Life Cycle Stage – Financial Needs – Choice of Investment

This is the fourth in the series of Financial literacy series. Previous ones here: 1, 2, 3.

Age of an investor, family situation and health are important determinants of financial goals. Also financial goals and plans depend on the income, expenditures & cash flow requirements of an individual.

For the purpose of ideal financial planning, investors can be segmented according to certain stage in their life cycle

Stage I : Ages: 20 to 30 (Unmarried, Young Professionals)
Stage II : Ages 30-45 (Married, With or Without Kids)
Stage III : Ages 45-55 (Pre Retirement)
Stage IV : Ages >55 (Retirement)

Let's start with the first stage: Life Cycle Stage I : Ages: 20 to 30 (Unmarried, Young Professionals)

• Continuing higher education or just started working
• May or may not own home
• May or may not have dependents

Financial Needs Are Immediate & Short Term

• May still have some support from parents
• May be saving towards future family needs - say buying home
• May be paying off education loans
• Likes to spend money

Ability to Invest :

• Limited due to higher spending

Choice Of Investments :

• Liquid plans & short term investments.
• Some exposure to equity and pension products,
• Term Insurance plan

The second stage comes in another post!

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