Managing money is not only about returns. Basic concepts of investing need to be implemented to ensure liquidity too
It's amazing as to how a retired professional who feels rich and wealthy immediately after retirement begins to worry about the erosion in cash flows after every decade. The feeling of what to do with money turns into what to do for money over a period of time. With life expectancy curve inching upwards over the years, there is a likelihood of many getting into this mood in the coming decades. Can one stop from feeling short of funds with planning or should one accept it as a fact of life?
A friend recently commented that there would not be any retirement for him as he has been running his enterprise. Hence, he dismissed the idea of retirement planning at the outset and instead argued that he would manage money till his last breath. When I know very well how to manage money, why should I worry about products like pension plans.
At 45, every individual is bound to believe that he has the smartness to manage money as has the energy and enthusiasm to understand different products, their risk profile etc. With age, the individual's ability to comprehend products begins to wane and this is one of the reasons why many senior citizens are comfortable with investment products like post office deposits, fixed deposits etc. Not only are they explicit with their returns but these products are also easy to manage. Only challenge comes when the investor is required to manage tax liability.
While options for senior citizens have been discussed at regular intervals in these columns, one should also focus on other integral components of investing as they get older.
Here are some factors that need to be kept in mind:
Keep record of all your investments
Every investor should keep his family informed about his investments and it becomes a necessity in the case of senior citizens. A few months ago, a family sought help for the identification of fixed deposits as they had no clue about their parents' investment strategy. A few details were discovered because of the quarterly interest transfer into the bank account. In fact, the family had to wait for the maturity of the deposits as the deceased father had not left any clues about his investments. While secrecy with respect to investments is a necessity in some cases, it may not serve any purpose in the long run.
Avoid too many products
A good fund manager is the one who keeps it simple and easy to manage. While diversification is a necessity for managing risk, avoid quantity in your portfolio. In fact, for senior citizens, options are limited and hence, diversification should be according to themes. For instance, if you are comfortable with a bank deposit, stick to one or two banks for parking money rather than spreading it over half-a-dozen accounts.
Nomination and joint account operations
The needs of investors change over a period of time and hence investments too should keep pace with the changes. While nomination is a necessity as the pie (of investments) and age increase, it is not a bad idea to consider the option of joint ownership over a period of time. For instance, a fixed deposit or a mutual fund investment can be in joint ownership with the option of either or survivor. This will ensure easy access to funds in the event of emergency.
While a professional fund manager will ensure these requirements, the challenge comes when money is handled independently by an investor without taking his family into confidence. Implementation of these strategies is a bigger necessity than managing returns as they ensure liquidity in times of need.
