Remember ME - You Me and Dementia
December 23, 2007
INDIA: Investment Planning For The Sunset Days
NEW DELHI (The Economic Times), December 23, 2007:
Investment planning for retirement should be an essential element financial planning. Planning for retirement is a comprehensive process for determining how much money you will need at the time of retirement.
It also helps you to identify the best ways of saving for retirement given your financial situation. A lot of people feel that retirement planning is important when you cross 40 years of age. But nowadays, people have started thinking of retirement planning when in their twenties and thirties. Also, tax incentives on retirement schemes have made these schemes more lucrative for investors.
A proper financial planning for retirement requires a long period of time, that is, from the day you start working until well beyond your actual retirement date. Money saved in the early part of the life has more time to grow due to compounding effect. Also young investors can look for investing in more risky instruments. They have time on their side which provides an extra cushion to absorb the risks and hence lower the risk.
Planning is an important part when talking about savings for retirement. You need to extrapolate your future expenses based on the current expenses (for example living expenses, travel and leisure, medical and other routine annual expenses). Since it is a very long term plan, it may not be very accurate in the beginning. Investors should treat it as a flexible and dynamic plan which can be revised based on changes in projected goals and current earnings.
Investors need to review their investment plan regularly and if necessary, make changes to accommodate any additional needs. A good retirement plan requires your active monitoring and long-term commitment.
Once you have thought about an investment plan, your investment allocation would depend on the amount save, the return you are looking at, your age, current income and your risk appetite bracket so that you can maximize your returns.
These are some broad model profiles for allocating your investment portfolio; however, the actual allocation could be different on a case by case basis.
Investors below thirty years: These investors have long way to go for retirement.
They can afford to invest in higher risk instruments in order to get better returns. Investors in this age bracket can invest in aggressive instruments to fetch better returns. They can invest 50 percent to 70 percent of their savings in equity market and equity related instruments and rest in safe instruments like EPF, PPF, VPF, NSC, bank fixed deposits and precious metals etc.
Investors between 30 and 40 years: Investors in this age bracket can look for balancing their portfolio by investing in residential property. They still have long way for their retirement and therefore can aggressively invest in equity linked market instruments (approx 50 percent of their total portfolio).
Investors in the 40 - 50 years age bracket: These investors should go for a more balanced approach towards risky and safe investment. They should reduce exposure in equity linked instruments to 30 percent - 40 percent of the total investment portfolio. They should look for investments in safer investments like property for rental returns, and other fixed income securities.
Investors in above 50 years age bracket: These investors are very close to their retirement. They should gradually reduce their exposure in equity linked instruments to less than 20 percent. Based on their needs they can look for investments that secure a regular monthly income.
The real secret here is to start investing early and investing regularly in life, whatever small the amount may be. Investing early gives time to your investment to grow by way of compounding and investing at regular time intervals make you ride multiple opportunities in the market.
An ideal portfolio should be well diversified with well thought out allocation for equity, mutual funds, insurance (life insurance as well as medical insurance), fixed deposits, gold and properties. It is not difficult to build a good portfolio, but it takes time to build a complete one.
By Vikas Agarwal, TNN
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