With the swaying equity markets, dull precious metals, longer life span and escalating prices of goods; managing finances has never been as perplexing for those approaching retirement as the current war-stricken phase.<\/p>\n
Inching closer to retirement means gradually shifting investments from an aggressive phase of higher equity exposure to a conservative yet wealth preserving phase and providing enough stability to the portfolio through heavy fixed-income investments.<\/p>\n
But currently, it is risky trying to redeem equity investments as one might end up with an overall smaller retirement corpus, which needs to last at least for the next 25-30 years. However, these testing phases are when the basic financial planning matters.<\/p>\n
Mint spoke to financial planners and investment managers to understand how those nearing retirement should navigate these tough times of political uncertainty and market meltdown phase.<\/p>\n
Avoid panic<\/p>\n
First advice they offer is not to make decisions in panic. The short-term volatility can force individuals to shun equities completely in a bid to protect the capital. But only fixed income investments would help in the long-term if inflation raises its ugly head.<\/p>\n
\u201cIt is observed that when decisions are made during turbulent times, they tend to go wrong. There is a chance one takes a call on gold or oil investment in the morning and by the evening the prices turn another way. Planning to time investments is futile during such phases,\u201d says Suresh Sadagopan, Founder & Managing Director, Ladder7 Wealth Planners.<\/p>\n
When one burns fingers often due to panic reactions, the investment instrument is given up.<\/p>\n
Also Read | EPF rules: 5 myths about retirement age, interest, pension you shouldn\u2019t believe<\/a><\/p>\n \u201cOften the behavioural mistakes lead to blaming the product. However, the performance is affected due to lower allocation during dull equity phases and higher allocation during euphoria,\u201d says Poonam Rungta, Certified Financial Planner at P Rungta Investments.<\/p>\n Do not give up on asset classes<\/p>\n Exiting equities<\/a> due to volatility is the easiest during such times, but this behaviour could be harmful for your portfolio.<\/p>\n \u201cA common behaviour is to completely get out of equity until volatility subsides and re-enter at an opportune time. But understand that reinvesting may not be possible at a later stage due to the run up. Some investors got a taste of this under silver investments and small caps,\u201d says Rungta.<\/p>\n So, do not stop your SIPs due to market volatility as this anxiety could force you to accumulate units at a higher price always, warns Rungta.<\/p>\n Basics matter<\/p>\n Trying times like these test the foundation of your financial portfolio and the asset allocation is the underlying fabric that is critical. \u201cIn periods of market volatility, the key is not to exit markets and to build a well-diversified portfolio that balances safety, liquidity, and moderate growth,\u201d says Saurabh Jain, Co-Founder & CEO, Stable Money.<\/p>\n So, if that is in order then the secured debt portion can offer solace for the near term needs.<\/p>\n Also Read | Can AI investment theme continue to dominate stock markets in medium term?<\/a><\/p>\n \u201cSticking to asset allocation mix right helps one at all times, but more so during the phases of volatility as it reduces the anxiety linked to shorter-term market ups and downs as your immediate needs are already taken care of by parking in less volatile investment avenues,\u201d says Rungta.<\/p>\n Then drawing funds for immediate needs can be done through the debt portion, even as the equity portion is slowly reduced.<\/p>\n \u201cFor asset classes that aren\u2019t volatile \u2013 such as debt \u2013 one need not worry too much. Also, when one is tapering equity exposure, one would gradually move from 60% equity to 55-50% equity and not 20% equity,\u201d Sadagopan says.<\/p>\n One can use the trigger facility under mutual funds such as sell select units when the equity fund returns scale a set percentage higher. These can also help purchase more during dips.<\/p>\n \u201cPhasing down equity exposure over 12\u201324 months while retaining a modest allocation to diversified equity mutual funds<\/a> helps preserve long-term growth potential and protects purchasing power against inflation,\u201d says Jain.<\/p>\n Longer-horizon<\/p>\n Don\u2019t expect quick results.<\/p>\n \u201cBased on the geo-political conditions, one needs to have a long-term horizon for investments and need to plan adequately for contingency provision. The current worry for investors are the goals in the immediate term of 18 months. However, appropriate provision needs to be made for immediate needs of three years,\u201d says Sadagopan.<\/p>\n As a result the inflation-beating long-term assets can continue to grow in the background through smaller investments at regular intervals.<\/p>\n \u201cInvesting through Systematic Investment Plans (SIPs) can also help retirees navigate volatility by spreading investments over time, reducing the impact of short-term price fluctuations while gradually building exposure to these assets,\u201d says Jain.<\/p>\n These also help you inflation-proof your portfolio as sticking to fixed income instrument will give you negative return. \u201cAnother risk of inflation spike needs to be built into planning for contingency needs,\u201d warns Sadagopan. Hence using equity investments and even step-up SIP<\/a>, where we invest slightly higher with each SIP anniversary would help.<\/p>\n Saving to protect immediate needs<\/p>\n Parking the funds generated from other asset classes in fixed-income instruments for immediate consumption is ideal, as they offer stability and predictable income.<\/p>\n \u201cBank fixed deposits remain a popular choice, and several small finance banks currently offer interest rates of 8% or higher. Deposits of up to \u20b95 lakh per depositor are also protected under the Deposit Insurance and Credit Guarantee Corporation (DICGC) framework, adding an additional layer of security,\u201d says Jain.<\/p>\n Retiree-friendly investment products<\/p>\n Alongside FDs, retirees can also consider allocating to high-rated corporate bonds, which provide relatively stable returns and fixed, predictable income streams, making them another effective way to add visibility and stability to a retirement portfolio.<\/p>\n \u201cRetiring investors look for steady returns with safety and bonds offer the desired solution. These are easily tradeable (high rating) and offer fixed rate returns. Bonds are generally secured and now have wide participation from retail investors, funds, insurance companies and corporates,\u201d suggests Parag Sharma, MD & CEO, Shriram Finance, adding that finding secondary market bond investing opportunities (through stock exchanges) are increasingly possible in the current phase.<\/p>\n Cash flow<\/p>\n Don\u2019t consider equity instruments for immediate needs. Instead consider other assets.<\/p>\n