Increasing allocation to equity and other growth assets may expose Shivam’s portfolio to more risk at a stage when he wants to utilise the corpus to meet his goal. As Shivam plans to use the corpus when he is 50 years old, he may not have the investment horizon necessary to manage a down cycle in equity and real estate markets, in case they happen. It is not Shivam’s age but the holding period available for the investment that is relevant in making an appropriate investment choice. Moreover, the additional return from investment in these assets for the remaining eight years may not change the final corpus value significantly.
Shivam may have to consider postponing his entrepreneurial plans by a few years to give his investments time to grow. The advantage is two-fold. One is the benefit of compounding that the additional time will give his investments. Two, the demand on the corpus will come down as his salary will take care of his expenses as long as he is employed. Shivam should also consider allocating more to this goal than what was originally planned. He is at a stage in life when his income will be high and outpace his current expenses comfortably. Increasing his allocations is one more way for him to meet his targeted savings. When Shivam is closer to the time that he will start drawing on the corpus, he must move it to less risky investments so that they don’t lose value when the money is required. Increasing his investment horizon and allocation is a better way to pursue his dream of entrepreneurship, albeit a little late, than jeopardising the whole venture by making the wrong investment choice.
Content on this page is courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.