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Blueprint For Mature Investors

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Blueprint For Mature Investors
Vijay L Bhambwani - 02 November 2020

Individuals in their late forties or fifties are ideally suited for investing in stock markets. They often know what they want to do with their money or available capital. Having been done and dusted with shopping binges, they are more focused on retirement plans. They have a lifetime of savings to deploy. Hence, they can make the best use of available opportunities. How does one go about this?

First and foremost, one needs to decide on how much money to allocate to which asset class.

Decided on your retirement age? If you are in service, it is 60, but if you are a professional, I presume most will pick an age between 70 and 80. Let me go with the assumption that you are a 50-year-old professional and choose 70 as your retirement age.

Deduct your present age from your retirement age, and the number is 20. So you deploy no more than 20 per cent of your capital in relatively high-risk assets like equity. This may offer higher returns, but risks of losses also loom large.

The remaining amount must be invested in relatively safer assets like fixed income securities and bullion.

Among fixed-income assets, I prefer the safety offered by central or state governments. These are sovereign guaranteed bonds issued by the Reserve Bank of India, Public Provident Fund (PPF) and post office senior citizens savings schemes. They offer higher returns and tax savings compared to bank fixed deposits. It means increased returns to take back home. The safety comes from the government’s backing and its power to print currency for repaying debt.

Private fixed income schemes lack this advantage.

However, returns could be higher, but your capital is also at a relatively higher risk of erosion.

Investors who prefer debt mutual funds should make sure the chosen fund invests primarily in government securities with little exposure to private sector instruments. It will ensure adequate return or safety of your capital.

I chose bullion because of its ability to protect the capital from reduced buying power caused by inflation. The long-term average erosion in Indian Rupee is between 3.50 to 5 per cent per year. Gold, however, provides a store of value as well as capital appreciation in this regard. You can buy physical bars, coins, and Exchange Traded Funds (ETFs).

Investment in equities comes next. Avoid the temptation of purchasing penny stocks — low priced shares, usually in single or low double digits. Some may not make it to your retirement age!

Think of what you cannot live without - commonly called consumer staples in financial market jargon. Buy stocks of good companies that make products like soaps, shampoos, garments, medicines, food items, and footwear. Even if you mistime your entry into the market, remember you have time on your side. Your retirement is a decade or two away. Stocks of these dependable companies will not only appreciate but will also provide dividends over a period of time. Should you wish to trade for short term, I recommend limiting its share within the 20 per cent capital allocated for relatively risky investments. Do not reduce your allocation for safe fixed income instruments to accommodate your trading endeavours.

Your capital gives you freedom to live a comfortable retired life. Capital preservation, therefore, must always be a priority irrespective of your current age.

If you are a first-time investor, it pays to consult an investment advisor even if it entails shelling out a small fee. It can preserve your capital and save it from erosion by following wrong investment decisions. Make sure you share your requirements, investment goals and expected returns upfront with your advisor. It will help formulate the best options for your needs.

Taking a health check of your investment portfolio, at least once every quarter, is a prudent investment practice. It will tell whether you are getting the desired returns from your money or if you need to churn your investment portfolio – the various instruments in which you invested for a comfortable retired life. Happy Investing!


The author is the editor of Fast Profits Daily, a publication of Equitymaster

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