What should you be invested in your 40s?

Most of us start our earning journey sometime in our 20s, but it isn’t until a decade later when some financial maturity starts to set in. By financial maturity I mean a disciplined approach to managing income, spending and saving.

It is a good time too given that for many of us some additional family responsibilities start to bloom. By the time one is in their 40s, it’s not just children but also elderly parents who are now in the circle of responsibilities.

Managing money in this period takes on many different facets. Other than covering your basic needs of insurance and contingency, providing for the family and maintaining a lifestyle, you must also focus on building that retirement kitty.

To marry all these financial nuances in your 40s, investing right is a priority.

Begin with allocating to growth assets

Growth assets help you build wealth as the value of the original investment expands. Compounding this value over time can help create wealth. Equity and real estate are some common types of growth assets.  You need these to cater to your long term, which is  5 years plus, financial goals. These vary from children’s education to retirement or buying a house and so on.

You will have to work backwards to understand how much you need to allocate for this. Within growth assets investing in equity comes with ease of access, transparency and flexibility. With real estate ensure that you don’t count the house you own and live in as an investment. Considering the challenges of liquidating real estate investments and inherent price risks, invest in such an investment only if you have substantial safety nets.

Growth assets are important to build wealth if you aim to beat long term inflation. Ramp up this part of your portfolio, if need be, even at the cost of current consumption.

Have a stable investment, catering to contingency

Don’t confuse this with your stable investments in pension funds. Those also cater to your retirement kitty. However, along with the above, you need to have some money put aside for emergency spends that can take you by surprise. It could range from medical expenses for elderly parents to spends on children and even giving loans to close friends and family.

There is medical insurance to take care of some of these emergency requirements, however, insurance may not cover the entire cost, especially if treatment is long and doesn’t require hospitalisation. You have to be prepared for sudden accidents, car breakdowns and even large spends on home refurnishing and so on.

Your contingency investment fund can rest in bank deposits or low risk debt mutual funds like liquid funds and short term income funds.

Going for more

If you have been prudent through the first 15-20 years of your earning life cycle and after catering for life goals and contingencies have some amount left over to invest, you may seek out alternative assets which can potentially add greater returns to your portfolio.

These could come in many forms, real estate funds, venture capital funds, private equity funds, high yield bonds and even direct investments in start-ups and ventures. There is also the lure of cryptocurrencies for a return kick.

Be mindful that premium returns comes at the cost of substantially higher risk and even here it will be more about remaining invested over many years rather than a get rich quick scheme. Indulge in these types of investments with not more than 5%-10% of your overall investible surplus. Even here be careful to invest in what you understand rather than following a herd.

Life in the 40s is about confidence and consolidation. That is what can come through in your investment portfolio too, once you make the accurate allocations for the right reasons.