Retirement is one of the most important and often neglected financial phases of anybody’s life. When you start your rest after years of hard work, you should be able to live a life filled with peace and for that, you will need a corpus that can financially safeguard you after your income has stopped. This is where a retirement portfolio becomes extremely important. While a lot of people understand the importance of having a sound portfolio for your retirement fund, there is still some confusion regarding what its contents should be. Let’s explore the same and find an answer through this article.
Fixed-income instruments
Since most people understand the importance of having a retirement corpus, a higher number of people choose fixed-income instruments as a default choice for their retirement investment. The plus side here is that fixed-income instruments, like a fixed deposit or a government bond, come with almost no risk since they are not market-linked. Furthermore, you can use calculators to find exactly what you will earn and this can make financial planning easier. But one big downside here is that these fixed-income investment options often fail to offer superior returns as a market-linked investment does. Of course, there will be more risk associated with investing in instruments that are linked and dependent on the stock market, but this risk is often offset by the huge potential they carry. For instance, while a fixed deposit can give you an interest rate between 6% to 9% per annum, an equity investment, for example, ELSS, could give you about 15% to 20% returns per annum, on an average.
But that doesn’t mean you should go overboard and park all your money in equities. Instead, what could work is a diverse and dynamic portfolio that takes into account your age, financial status, and market conditions.
Take more risk when you can afford
Experts say you can afford to take more risks when you’re younger. This is because you might have a lot of investing years in front of you and minor setbacks can be offset by long term returns. Hence, at a younger age, it is advisable to invest more in equities so that your money is given a chance to grow. As you age and your responsibilities grow, you can switch slowly to more and more low-risk investments. Although the key here is to start early, a lot of investors delay starting their retirement portfolio thinking they still have time. But starting early could give you a great advantage and help you grow your money substantially.
Low risk fixed deposit alternatives
As the risk quotient decreases, you may be tempted to depend more on fixed deposits for a safer investment option. While this is completely valid, there are some alternatives that you could try, the main one being government bonds. Through government bonds, you can lend money to the government for different projects and earn interest till the date of maturity. This comes with lesser risk and often gives more returns than fixed deposits.
Building a retirement portfolio is arguably the most important financial activities that you should undertake. It not only helps you have a safe retirement life, but it can also help you and your family during rainy days.
