Mid-career financial blues?

Mid-career financial blues?
Even if you don't have your act in order, all is not lost.

Anand, just over 40, sent us a mail with an interesting observation: "Never in my life have I earned so much and never was financial dependence on me this high". So while he did see a steady growth in earnings over the years, he also witnessed a rise in expenses. Apart from household expenses and education expenses of two children in school, the future was playing on his mind. Retirement was slowly creeping upon him. The expenses on higher education of his children was cause for concern. While he did not mention it, saving for children's marriage would also be a priority for a number of parents.

Action Plan
Insurance is a priority over saving and investment. You need to start by taking a good and hard look at your insurance cover. You probably have a spouse and children who are dependent on you. So the financial impact of the loss of your life can be most severe during these years.

Since your children are in school, you will be in a position to make a realistic assessment of the money that will be needed for their higher education as well as their marriage. Both of these could be major expenses.

If something happen to you, you need to figure out whether your present insurance cover, along with your savings, will be sufficient to meet these expenses and also leave enough money to tide your spouse through the rest of her life. If not, then it makes sense to go for an additional term cover.

Decrease your exposure to equity. While equity can still form a part of your portfolio, cut down on aggression and increase the weight of debt. If you are already invested in equity, shift your investments from aggressive equity funds towards stable large-cap funds and balanced funds. You can even sell your pure mid-cap funds as the large-cap and balanced funds will bring in some mid-cap exposure which should be sufficient for you.

By investing in balanced funds, you can have 60-70 per cent allocation to equities and about 30 per cent to debt. This will help you partake in an upside in the market as well as bring in the much needed stability to protect returns on the downside.

To protect the accumulated wealth, there are a number of fixed return instruments you can consider. You have a choice between Public Provident Fund, National Savings Certificate and five-year bank deposits. These also offer a tax benefit under Section 80C.

These investments can add a lot of value at this stage simply because they rank high on safety, your principal is guaranteed along with your returns. The assured return of 8 per cent per annum looks quite handsome considering the circumstances prevailing in the debt markets. And, should you need money, you can even take a loan against them.

As the timeframe draws closer to your saving goals, shift money from equity to safer and guaranteed avenues. Or else, when you do need the money, the market may have taken a nasty turn leaving you in the lurch.

Lesson to be learnt
You have three aims:
i. Wealth maximisation with less aggression than someone younger than you (60-70 per cent in equity).
ii. Protection of all that you have accumulated this far (30-40 per cent in debt).
iii. Protection for your family (evaluate insurance needs).