hr: Money

It seems that quite a few people are afraid to invest into the stock market simply because of fear of the unknown, or because they think it’s too risky. Such people have as much in $80,000 sitting in cash, or in Money-Market Fund, which gives paltry gains of 3-4 percent.

Photo Credit: Tracy O

It’s really a question of mindset, as most people are simply too young to play it safe. There are several equity instruments called ‘Fund of Funds‘, which invest not directly in shares or bonds, but in other investment options, and thus achieve a greater amount of diversity to spread you risk.

In fact, there are funds that are tailored to suit young people. These are called ‘Life Stage Funds‘. They basically allot a percentage of your investments to debt instruments that provide stability, and a certain percentage to stock, that provides high growth over a long term horizon. The actual percentage will depend on how old you are. If you are young, then you need less short term certainty, and more long term certainty. Therefore, the percentage of funds to debt will be low, say 20%.

Older people will have a much higer component of debt, since they need stability in the later part of their lives more than anything else, and will therefore have a debt component of upto 80%.

Funds like this will help young investors to ride the market long term, and start planning their retirement.