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Investment Mistakes can prove harmful to your financial goals, and the tendency to commit these mistakes is prominent when we are in 40-50 years of age!
In our 40-50 years of age, we are in the mid-point of the time we start earning and the time when we plan to retire. During these years we have generally a stable income, with several financial goals that require proper investment to be achieved.
That’s why even a single or small financial mistake during this phase can cost big and can adversely affect our preparedness for a stable financial future. So, we had to take care that we do not commit any financial mistake especially during this stage.
Well, to avoid any kind of financial mistake, it is a must for investors to know about the kind of possible investment mistakes that an individual can commit.
For your help, here we have discussed four common financial mistakes individuals in their 40s should steer clear of.
Keeping Emergency Fund Static…….
An emergency fund acts as a safety net that can be used when dealing with unforeseen financial situations like illness, disability, or job loss. Thus, it should be adequate to cover your mandatory expenses for at least six months – utility bills, insurance premiums, loan EMIs, etc.
Not having this backup fund in place can force you to get costlier loans or liquidate investments set aside for achieving crucial financial goals. Similarly, the possibility of defaulting on loan EMIs would be relatively higher if you do not have sufficient funds to clear the dues on time. It may also attract higher penalties and pull down your credit score.
Thus, what’s the best option to avoid all this upside-down situation is to create an adequate emergency fund. Park your emergency fund in liquid instruments such as liquid mutual funds.
Preferring Child’s Higher Education Goal Over Retirement Goal........
Being a parent, it is natural to provide the best available higher education to our children. With steep inflation in the cost of higher education, parents, especially those in their 40s, focus more on investing to create a sufficient corpus for their child’s higher education.
However, in the meanwhile creating higher education corpus they often ignore their post-retirement savings, which is not good from a financial point of view.
Rising life expectancy, steep inflation in healthcare expenses, and growing acceptance of nuclear families make it equally important for you to save enough for your post-retirement goals.
You must understand that retired individuals do not have access to regular income, for their after-retirement expenses, the only source is their retirement money. On the contrary, parents can always avail education loans for funding their child’s higher education, which then can be repaid by their children once they start earning.
Use online retirement calculators to find out the monthly investments required for building your post-retirement corpus. Any monthly surpluses left after the retirement contributions can be invested for accumulating your child’s higher education corpus.
Not Enough Insurance Cover……..
Health care expenses are on a continuous rise and so there is a need for adequate insurance cover for every individual. You must also buy sufficient health insurance to protect yourself and your dependent family members from rising medical expenses.
To get adequate life insurance cover for lower premiums can be best done via the purchase of term insurance. As insurance premiums continue to increase with advancing age, priorities purchasing term life and health insurance policies as early as possible.
Not Investing In Equities To Meet Your Long Term Financial Goals
While the participation of retail investors in equities has significantly increased over the last few years, many in their 40s continue to avoid equities in meeting their long-term financial goals. They still prefer the fixed income instruments over the equities.
However, they need to understand that fixed income instruments only provide safety to your invested capital, while on the other hand, Equity funds help you get:
- Inflation beating returns
- Tax-efficient returns.
- Good returns over the long term.
Hence, you must not ignore investing in equities.
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For any kind of query, you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).