In India, people usually retire at the age of 60-65 years. This provides ample time to save and invest for post-retirement expenses. But, for some time now a new trend has been growing, which is called FIRE. Fire means financial freedom, early retirement. In this, one does not wait till the age of 60 to retire. He retires before the scheduled time. However, this is a bit tricky. But, with proper planning, early retirement is possible.
me.ng of fire strategy
The basic principle of FIRE is based on saving more and investing more. In this, a person usually has to use 50-70 percent of his income for savings and investment. It can be difficult to invest large sums of money when the markets are volatile. Apart from this, market fluctuations also affect your investment portfolio. We can understand this with the help of an example. Vishal is a software engineer who has made FIRE his goal.
Vishal is 40 years old. He has invested Rs 50 lakh in the last decade. His goal is to retire at the age of 50. By then he aims to build a portfolio of Rs 1 crore. But, due to the sudden fall in the market, the value of his portfolio has reduced to Rs 35 lakh. This may impact his portfolio target of Rs 1 crore. Therefore, it is important to keep the following things in mind while lighting a fire.
1. Focus on portfolio diversification
Your investment portfolio should be diversified. This will reduce the impact of market fluctuations on your portfolio. Apart from shares, your portfolio should also include debt instruments. For this you can invest in government bonds. There is an inverse relationship between the debt market and the stock market. In such a situation, if the stock market falls, your investment in bonds will keep your portfolio safe.
2. Invest for long-term goals
If you invest for the long term, market fluctuations will have little or no impact on your investments. Many people get scared when the market goes down. Then they start withdrawing their investment money. Due to this, their goal of creating a big fund in the long run is not achieved.
3. Create a separate fund for emergencies
It is important to have a separate fund for emergencies. If you suddenly need money, it does not affect your savings and investment plans. If you haven’t created an emergency fund yet, create one for 3 to 6 months of expenses. You will then need to grow this fund to cover your expenses for 6-12 months. This will not affect your savings and investments even in case of any unexpected emergency.
