One must review and rebalance their portfolio annually, if equities have run up significantly, trim and redirect into fixed income or gold to restore target allocation
Delhi resident Kunal Verma, 40, is worried if his financial planning is on track. With almost two decades of work behind him and retirement not too far, Verma knows that the investment choices he makes now will shape the rest of his financial life. Verma is balancing several responsibilities, including home loan repayments, children’s education and ageing parents while trying to build a retirement corpus.
How can 40-year-olds build a portfolio that balances immediate needs with long-term goals?
What you must not do at this stage
It is equally important to know what not to do. By 40, investors are generally experienced in disciplined investing through systematic investment plans (SIPs). They should stick to maintaining that discipline and not take unnecessary risks or go overboard.
“I have seen many investors withdrawing their provident fund (PF) as they change jobs. This is not in your best interest, especially for private-sector employees without a pension. Link and transfer your PF to the new job or new account,” said Amol Joshi, Founder of PlanRupee Investment Services. “Also, till your retirement plan is well and truly set, avoid making a purchase of a second property.”
While a tendency toward risk aversion often sets in at 40, informed risk-taking is essential for long-term capital growth. “Being overly conservative can slow progress toward critical financial goals, while a balanced portfolio that combines growth with stability can help keep long-term objectives on track,” said Mayank Bhatnagar, Co- founder & COO, FinEdge.
Overlooking long-term financial realities is a mistake. Many people keep a large part of their savings in bank accounts that offer around 3.5 percent interest, while inflation may be running at 5 to 6 percent. This means the real value of money is slowly eroding over time.
Another issue is portfolio clutter. “Holding 15 mutual fund schemes does not necessarily mean proper diversification. In many cases, it simply leads to duplication and confusion. A more effective approach is to consolidate investments into around four to six well-chosen funds,” said Saurabh Jain, Co-Founder and CEO, Stable Money.
Skipping regular reviews is another mistake. A portfolio that was suitable at age 30 may not match the financial goals, responsibilities and risk tolerance at 40, which is why an annual review is a must.
What should you focus on
Adopting a goal-based investment approach is critical. “Each major life goal, whether it is retirement, education funding, or long-term financial security, needs to be clearly defined, time-bound, and backed by a structured investment strategy,” said Bhatnagar. “This ‘sandwich phase’ makes prioritisation and disciplined financial planning more important than ever.”
These goals are easier to manage when investing begins in late 20s or early 30s, allowing compounding to work over longer time horizons. However, for those starting late, the focus should be on stepping up investments by channelling salary increases, annual bonuses, or other windfall gains toward long-term goals while keeping your personal finance ratios like income to expense, income to debt and savings to surplus ratios strong, say experts.
How to build a balanced investment strategy
Turning 40 is often a turning point in personal finance, as incomes are typically higher but financial responsibilities are also greater.
Hitesh Soni, a Qualified Personal Finance Professional, said, “The foundation of financial stability at this stage is disciplined cash-flow management. A simple and practical guideline is the 40:30:30 rule for allocating post-tax income.”
Soni said 40 percent should go towards essentials and lifestyle bucket, covering housing, food, utilities, transportation, insurance, and modest lifestyle expenses such as dining out or travel. Thirty percent for EMIs and debt obligations bucket, and the remaining 30 percent for the savings and investments bucket. This portion builds your long-term financial independence.
Mohit Gang, co-founder and chief executive officer of Moneyfront, said this stage of life requires investors to balance growth with protection, so that wealth continues to build while risks remain controlled. According to Gang, a strong investment strategy at 40 should follow a few core principles.
One widely used guideline is the “100 minus age” rule, which calls for keeping about 60 percent of investments in equities for long-term growth and the remaining 40 percent in debt or fixed-income assets to cushion volatility, said Gang.
Gang also recommends a goal-based approach by creating separate buckets for different financial needs. Retirement savings, for example, can focus on high-equity index funds, children’s education goals can include balanced hybrid funds or gold, and an emergency fund should ideally cover six to twelve months of expenses in liquid funds.
While equities remain essential at 40, investing in schemes can be daunting. Jain said, “The key is maturing your approach within equities. Shift from high-risk small-cap concentration toward a balanced mix of large-cap, flexi-cap, and index funds. Use SIPs systematically. Avoid the temptation to time the market based on news cycles.”
Strengthening retirement planning is another key step, with investors aiming to build a corpus worth roughly three times their annual salary and increasing systematic investment plan contributions by around 10 to 15 percent each year to close any gaps.
Protecting capital is essential, which means having adequate insurance such as a term life cover worth about 10 to 15 times annual expenses and a family health floater policy. The expense can be included under the essentials and lifestyle bucket.
One should also pay high-interest debt as early as possible because reducing such liabilities frees up more income that can be redirected towards long-term investments. “Manage loans such as home, car, or education debt. Prioritise paying off high-interest debt first and consider refinancing if interest rates decline,” said Soni. The expense related to this comes under the EMIs and debt obligations bucket.
While following these strategies can help achieve financial goals, Jain said, “One must also review and rebalance their portfolio annually, if equities have run up significantly, trim and redirect into fixed income or gold to restore target allocation.”
