Mastering the 8 golden rules of investment for a secure financial future

Investing wisely is crucial for building wealth and securing a comfortable financial future. The problem? It can be difficult to get started or feel hard to keep going. However, whether you're a newbie investor or an experienced one, adhering to certain principles can help you stay on the right track. Let’s look at some of them.

Save 10% of your income for retirement

One of the fundamental rules of investment is to save a portion of your income for retirement. Aim to set aside at least 10% of your earnings and invest it in retirement plans. By starting early and consistently contributing to your retirement savings, you can take advantage of compounding returns over time. Starting early and consistently contributing to these schemes will provide you with compounding returns over time, ensuring a secure retirement.

Increase investment as your income grows

As your income increases, it is important to increase your investment contributions as well. Avoid the temptation to upgrade your lifestyle extravagantly with every raise. Instead, allocate a portion of the additional income towards your investment portfolio. By doing so, you can accelerate your wealth accumulation and achieve your financial goals more quickly.

Don't dip into corpus before you retire

Once you have accumulated a substantial retirement corpus, it is crucial to resist the urge to dip into those funds before you actually retire. Premature withdrawals can significantly impact your long-term financial security. Maintain discipline and only access your retirement savings when it is necessary and aligned with your retirement plan.

Withdraw 5% a year initially, then step up

During retirement, it is advisable to withdraw approximately 4-5% of your portfolio value annually to sustain your lifestyle while keeping your funds intact. This withdrawal rate accounts for inflation and market fluctuations, allowing your investments to continue growing. As you progress through retirement, it may be necessary to adjust this rate based on your portfolio's performance and your evolving needs.

100 - Age = Your allocation to stocks

Determining your asset allocation is crucial. A common rule of thumb is to subtract your age from 100 to determine the percentage of your portfolio that should be allocated to stocks. The remaining percentage can be allocated to less volatile investments like fixed deposits, bonds, or government schemes. This approach helps balance risk and reward, considering your risk appetite and investment goals.

Borrow for education, save for retirement

Investing in education is a wise decision, and if necessary, taking on student loans can be a reasonable investment in your future earning potential. However, once you enter the workforce, prioritise paying off your education debt while simultaneously saving for retirement. Avoid excessive debt and focus on building a robust retirement savings plan that aligns with your long-term financial objectives.

Save 20 times your annual expenses

To ensure a financially secure retirement, aim to accumulate a retirement corpus that is approximately 20 times your annual expenses. This rule provides a rough estimate of the amount needed to maintain your desired lifestyle throughout retirement. By diligently saving and investing in a diversified portfolio that suits your risk profile, you can work towards achieving this target.

Invest early, invest regularly, and invest for the long term

The investment market rewards those who adopt an early, regular, and long-term investment strategy. Start investing as soon as possible, even if the amounts seem small initially. Consistency is key, as regular contributions allow your investments to grow over time. Furthermore, adopt a long-term perspective when it comes to investing. Avoid making impulsive decisions based on short-term market fluctuations and focus on the long-term potential of your investment portfolio.

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