After you start to seriously think about retirement by the time we are in our 50s, and we have worked our Net worth or our Assets and our Liabilities, after retirement- maintaining an income stream that will last for the rest of our life is more difficult now than it used to be. In the past, the average retiree generally lived for 10 to 12 years after retirement and coping with Inflation was not a big deal. But now, the average life after retirement is much longer, so you have to plan for at least 30 years of retirement income. Further, your buying capacity would also be reduced drastically due to higher affect of Inflation. A moderate inflation rate of 4 percent can reduce your buying power by 50 percent in 18 years time.
How and Where to Invest Money :–
So, you must prepare yourself, financially, to withstand these adverse situations. You must ensure that your savings are adequate and these are properly invested so that you get handsome returns even after beating the Inflation. For retirees, making the best use of their retirement corpus as well as managing their savings, that would keep Tax liability at bay and provide a regular stream of income is of prime importance. Further, when you’re younger, the money can be invested in high risk portfolio, as if ,one loses 20-25 percent, there is sufficient time available to recover. But this is not possible at the advanced age of late fiftys or in 60s.
As an investor , especially when you are in your 50s, you shouldn’t over estimate your ability to handle downturns, so better invest your money conservatively depending on your risk taking ability and the time span available with you for the investment. Your portfolio has to constructed in a way that will allow you to hold on through thick and thin, with comfort and without any undue stress.
Further, investing like a pro is complicated. There are ways to simplify the process. For this purpose, if required, seeking professional advice is probably the best alternative available for choosing the best way of investing your hard earned money. But if you want to invest of your own, it is better that you have some knowledge about the various options available in the financial market.
Understand Investment Risk :–
As investor, we understand that the potential for higher returns generally comes with higher risk. Stock portfolios tend to have higher highs and lower lows than bonds or bank C D/ F D. So, one has to be realistic with their expectations; a return of 14- 15 percent, as being propagated for stock markets and by some mutual fund advisers may turn out to be a myth. So, a return of about 9 percent from our investment portfolio appears to be realistic in the present time. For this purpose, we must invest in a mix of stocks, mutual fund and low income but less volatile instruments like Bonds or C D/F D. The split of our investment depends upon your age, risk taking capacity, your liabilities and your health. But in the 60 s of your age, 50: 50 ratio of investment in stocks/ Mutual fund and Bank C D/ bonds is suggested.
Build Your Portfolio :–
If you avoid stocks, thinking about the high level of volatility, you may eliminate market risk but at the same time ,you are taking on the very real risk that your money would lose considerable value after Inflation. So, for long- term, moderately conservative individuals, the following portfolio is suggested :–
30 -35 % Large cap equit
15 – 20 % small & mid cap equity
35 – 40 % Fixed income instruments
10 – 15 % Cash investment
Keep Some Cash :–
In general we think of cash as the money we keep in our savings or checking accounts. Cash can also include short- term and relatively safe investments like treasury bills or bonds, where the money is easily available in case of requirement.
CONCLUSION :—
Investing doesn’t stop with building your portfolio. It is important to periodically assess your portfolio’s performance so as to ensure that you are staying on the right track. Based on this review, you can re-balance your portfolio. Re-balancing also provides the discipline to fight your own emotions and apprehensions.