Skip to main content

Asset allocation in Retirement Planning

Asset allocation is the key to retirement planning

If you invest as per your asset allocation after taking into account the life cycle, there is a high possibility that you will retire rich

 

"I saved diligently in the past for retirement and have been disciplined in savings for future too but I am not aware of concrete plans"

"I know my goals but are not aware of how to allocate my assets"

"I have given my priorities for immediate goals like kid's education, house purchase but I have not thought so on long term goal like retirement planning"

The above mentioned are few situations which investors encounter in their life very often. In all likelihood, they have an elusive idea about what their expectations are but they don't have a concrete plan. Retirement Planning is one situation in life where people give least thoughts on the pretext that they would manage it comfortably or their kids will do the needful. In many situations, people have planned but they fail to follow the most important principle of asset allocation as they perceive that risks are same in all situations.

Why asset allocation is important?

Ideally, asset allocation and retirement planning are complementary to each other. An asset allocation as per your age will give a roadmap to identify the risk taking capacity and accordingly adjust your portfolio. An individual goes through different phases of life – accumulation, consolidation and spending and if you have not perceived your risks and accordingly adjust your portfolio in advance, even your disciplined investment habits will fail to achieve your target. Also, there is another demon, inflation which kills your purchasing power and depreciates your fund's future value.

So, how the life cycle of wealth accumulation impacts your retirement planning?

Accumulation phase – Since you are young and you have a long time horizon for investments, you should focus on relatively high risk, high return and capital oriented assets. Say, if you are in late 20s or early 30s, you should ideally have 70-80% of your investments in equity. The power of compounding does wonders if you start your investments early and continue despite all upheavals. So, for your retirement planning, this is the phase where you should make your maximum money, whatever small it may be, to reap benefits in your sunset years.

Consolidation phase – It takes place during the mid-to-late stages of your life. By now, you would have reduced your debt and should begin to generate more than sufficient savings with which to seriously invest for retirement. Since your horizon is still longer, focus should remain on higher risk, higher return assets. But as you move through this phase and the time horizon starts to shorten, there should be progressive shift to lower risk (less volatile) investment options, say from 70-80% equity allocation to 40-50%. This in turn will reduce your portfolio volatility but keep your investment returns reasonable. 

Spending phase – Spending commences at retirement as employment or business income ceases or slows. By this time, you should have finished your debt and accumulated enough assets. However, the primary goal should be to make your investments diligently; at the same time, there should not be too much reliance on low risk investments which will result in low returns, even negative sometime. This might lead to your inability to meet your retirement objectives. One mistake people do while they decide about the retirement age is they forget the vesting period as they retire earlier. For example, if they retire at 45-50, they still have 30-35 years of retirement life till their life expectancy which they will feed from the accumulated assets during the accumulation phase.

Common mistakes

You follow an investment allocation; however, you don't rebalance the portfolio as per the market movement. For example, you are 40 years old and your suggested asset allocation is 60 per cent in equity and 40 per cent in debt. Let us say, your equity and debt component moved by 40% and 8% in a year, the new investment ratio will be 66% and 34% respectively. Here, you should rebalance your portfolio and bring back the ratio to 60:40 as your risk has increased in your portfolio post the market movement. This is major mistake which all investors ignore. If we simply follow our investment pattern/asset allocation in line with our advisor's advice, 80-90% of our job is done. 10-20% work remains in bottom up selection of suitable schemes. 

What needs to be kept in mind?

"Invest early, sleep late" is the sole mantra of a successful retirement life. However, if you don't follow the principles of investing and adjust your portfolio risk as per the market expectations, your disciplined investment too will not suffice your future savings. The concept of strategic and tactical asset allocation still work in tandem which must be diligently followed as conveyed by your financial advisor. Make a detailed investment advisory plan with your advisor and review your portfolio on a fixed interval, ideally every year to readjust the asset allocation. 

Retirement is one arena where most of us fail to perceive the quantum of commitment required. In most of the times, either we procrastinate or we leave it to our fates. However, if we diligently follow investment advice and follow the asset allocation scientifically as per your age, you are through your sunny day goal, retirement goal and you will end up having a happy sunset life.

Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015

1.ICICI Prudential Tax Plan

2.Reliance Tax Saver (ELSS) Fund

3.HDFC TaxSaver

4.DSP BlackRock Tax Saver Fund

5.Religare Tax Plan

6.Franklin India TaxShield

7.Canara Robeco Equity Tax Saver

8.IDFC Tax Advantage (ELSS) Fund

9.Axis Tax Saver Fund

10.BNP Paribas Long Term Equity Fund

You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds

Invest in Tax Saver Mutual Funds Online -

Invest Online

Download Application Forms

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

---------------------------------------------

Leave your comment with mail ID and we will answer them

OR

You can write to us at

PrajnaCapital [at] Gmail [dot] Com

OR

Leave a missed Call on 94 8300 8300

---------------------------------------------

Invest Mutual Funds Online

Invest Any Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Popular posts from this blog

Birla SunLife Manufacturing Equity Fund

The Make in India program was launched by Prime Minister Naredra Modi in September 2014 as part of a wider set of nation-building initiatives. It was devised to transform India into a global design and manufacturing hub. The primary motive of the campaign is to encourage multinational as well domestic companies to manufacture their products in India. This would create more job opportunities, bring high-quality standards and attract capital along with technological investment to bring more foreign direct investment (FDI) in the country.   Why India as the next manufacturing destination?   The rising demand in India along with the multinational's desire to diversify their production to include low-cost plants in countries other than China, can help India's manufacturing sector to grow and create millions of jobs. In the words of our Honourable Prime Minister- Mr. Narendra Modi, India offers the 3 'Ds' for business to thrive— democracy,...

Total Returns Index brings out real Equity Funds Performers

From February, equity mutual funds have to change their benchmarks to account for dividend payments. Until now, funds used price-based benchmarks alone. TRI or total return indices assume that dividend payouts are reinvested back into the index. What this does is lift the overall index returns, because dividends get compounded. For example, the Sensex TRI index will consider dividend payouts of its constituent companies while the Nifty50 TRI index will consider dividends of its constituents. Using TRI indices as benchmarks comes on the argument that an equity funds earn dividends on the stocks in its portfolio, which they use to buy more stocks. Therefore, using an index that also considers dividend reinvestment would be a more appropriate benchmark. Shrinking outperformance With a stiffer benchmark, it is obvious that the margin by which an equity fund outperforms the benchmark would shrink. Rolling one-year returns from 2013 onwards, the average margin by which largecap funds out...

Stock Review: Havells

HAVELLS India's stock performance has been muted in the past three months, in line with the weak broader market. But, given the turnaround in its overseas subsidiary and the launch of new products in its consumer durable business, the company's stock may undergo a re-rating.    Havells is India's leading consumer electrical goods company, with consolidated sales of . 5,527 crore in the past four quarters. Its wholly-owned subsidiary Sylvania, which makes lighting and fixtures, has established brands in European, Latin American and Asian markets. Sylvania repre sented nearly half of the company's consolidated revenues in the first half of FY11.    Sylvania's poor financials hit Havells' consolidated performance in FY10. But, this has changed in the cur rent fiscal. Havells has reduced fixed costs of Sylvania by exiting from unprofitable businesses and outsourcing manufacturing to low-cost locations such as India and China. In the September 2010 quarter, Sylv...

Kisan Vikas Patra - KVP

  Kisan Vikas Patra (KVP) First launched in 1988, the Kisan Vikas Patra (KVP) is one of the premier and popular saving scheme offering from the Indian Postal Department. This product has had a very chequered history- initially successful, deemed a product that could be misused and thus terminated in 2011, followed by a triumphant return to prominence and popular consumption in 2014. The salient features of KVP are as follows- The grand USP- Money invested by the applicant doubles in 100 months (8 years, 4 months). KVPs are available in the following denominations- Rs.1000, Rs.5000, Rs.10,000 and Rs.50,000. The minimum purchase value for the KVP is Rs.1000. There is no maximum limit. KVPs are available at all departmental post offices across India. These certificates can be prematurely encashed after 2 ½ years from the point of issue. KVPs can be transferred from one individual to another and from one post office to another. ----------------------------------------------------- Inve...

How to generate a UAN Online

Best SIP Funds Online   In order to make Employees' Provident Fund (EPF) accounts portable, the Employees' Provident Fund Organisation (EPFO) had launched the facility of Universal Account Number (UAN ) in 2014. Having a UAN is now mandatory if you have an EPF account and are contributing to it. So far, you got this number from your employer and every time you changed jobs, you had to furnish this number to the new employer.  However, in order to make it easier for you to get a UAN , and without your employer's intervention, the EPFO now allows you to go online and generate a UAN on your own. This facility can be used by freshers, or new employees, who are joining the workforce as well as by employees who have older EPF accounts but do not have a UAN as yet. As a new employee, you can simply generate a UAN and provide the number to your employer at the time of joining, when you need to fill up forms for your EPF contribution. As per a circula...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now