After calculating the income as well as the expenses, one would reach to a corpus or the amount that he needs at the time of retirement so as to lead the same lifestyle as he is pursuing now and also to meet his goals. Once the lump sum amount is known, then an individual can allocate resources to his goals and find suitable modes of investment so as to reach the goals in the desired time frame.
Assessing the risk profile and thus finding appropriate investment avenues:
Investment requires prior knowledge of one's risk appetite. There are several questionnaires available with financial planners which help in assessing the risk profile of an investor.
There are three basic categories defining the risk appetite of an individual.
Aggressive risk profile: If a person belongs to the aggressive class of investors then it means he has the ability to take big risks. In such a case investment in risky products like equity or private equity is a good option as it gives back maximum returns.
Moderate risk profile: A moderate risk appetite holder is ready to take suitable amount of risk but always maintains a limit of the risk that he would be ready to take. Such an investor may invest in mutual funds.
Conservative risk profile: If one lies in the conservative segment, it means he prefers the safe method of investment. For such an investor banking products like fixed deposits or investment in government bonds can be one of the best options.
Keeping all these factors in mind a person has to move ahead towards making suitable investments, thus allocating his assets properly.
The final step in the entire process is monitoring the entire plan at proper time intervals and rebalancing the portfolio. Portfolio refers to the basket of investment products in which a person has invested. Rebalancing this portfolio at regular intervals is necessary because needs and necessities vary from time to time and a person has to review and re plan accordingly.