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

Surrender ULPPs

  ICICI Pru LifeTime and ICICI Pru Lifestage are Unit Linked Pension Plans. Such insurance linked retirement plans are neither good investments nor do they offer sufficient insurance cover. As you can see, these have turned out to be bad deals. In the Lifetime plan, the fund value is not even equal to the total premiums that you have paid and in the Lifestage plan your return is just about 6% which is quite low. The mortality charges are as per your age which is why they have increased. Moreover, once these plans matures, you will have to compulsorily opt for annuity (regular income) and the annuity rates are generally modest. Assuming these plans mature in the next one year, it will be wise to surrender the plan now and curb your future commitments.   Before you choose to buy a term plan, you have to consider a few points. You need to insure yourself, only during the time you are working and your family is financially dependent on you. At the age of 59, not all insurance companies w...

NPS Investment Choice for Safe Investors

Invest NPS Online       Whether they invested through SIPs or put in a lump sum amount, risk-averse individ uals have earned the highest returns. These are investors who stayed away from stocks and divided their NPS corpus between G class gilt funds and C class corporate debt funds. On average, gilt funds have given 9.75% annualised returns while corporate debt funds have churned out more than 11% in the past five years. As a result, the average return for ultra-safe investors in the past five years is in double digits. Even in the short term, ultrasafe investors have been the biggest gainers among NPS investors. Will the good times continue? The gilt funds of NPS are holding long-term bonds with an average maturity of over 19 years and a modified duration of about 9 years.These funds have done well because interest rate cuts have pushed down bond yields. But experts say this trend will not stay forever. NPS is a long-term investment and the bonds are predominantly held to matu...

ICICI Pru Constant Maturity Gilt dividend

Invest ICICI Prudential Constant Maturity Gilt Fund Online ICICI Prudential Mutual Fund   has announced dividend under the following schemes: Scheme Dividend ( R /unit) ICICI Pru Constant Maturity Gilt-DQ 0.26543239 ICICI Pru Constant Maturity Gilt Direct-DQ 0.27171609 ICICI Pru Q Interval Plan I-D 0.10617296 ICICI Pru Q Interval Plan I Direct-D 0.10703967 ICICI Pru Q Interval Plan I Ret-D 0.10617296             The record date has been fixed as June 13, 2016.   ----------------------------------------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in india for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Franklin India TaxShield 4. ICICI Prudential Long Term Equity Fund 5. IDFC Tax Advantage (ELSS) Fund 6. Birla Sun Life Tax Relief 96 7. DSP BlackRock Tax Saver Fund 8. Reliance Tax Saver (ELSS) ...

Buy Health Insurance Plan even if you are covered with my Employer

Buy Health Insurance Plan Online Yes, getting a private insurance cover now, which extends beyond your retirement age, is recommended There are a few reasons why buying a health insurance plan may make sense even though you get medical insurance from your employer. Here are the points you need to think about. Firstly, your employer's insurance coverage will only protect you as long as you are employed with the company. The policy will terminate when you quit the job or when you retire. Post retirement is perhaps the phase when one needs it the most but you won't have it then. Moreover, buying a new insurance policy after the age of 50 means that there will be no coverage for pre-existing diseases.   Lastly, health insurance policy you get from your employer may or may not cover your dependants. ------------------------------ ----------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver M...

Mutual Fund Review: Taurus Tax Shield

    Taurus Tax Shield has seen a turnaround in performance since 2007, but still remains a volatile offering… The fund has seen a turnaround in its performance since 2007 and has delivered impressively during market rallies since then. The portfolio is also more diversified. It contained its downfall to an average level in 2008 but is still one of the most volatile offerings in this category. Bold investors can look at this fund.   Strategy The fund manager invests across the market capitalisation and sectors. The selection of stocks is made on the basis of long-term business prospects and value creation. Fund Insight Launched in March 1996, the fund was a laggard with just two annual outperformances. Concentrated stock bets and high exposure to mid and small caps led to it being hit harder during market downturns. The number of stocks in the portfolio never exceeded 20 and it was not rare to see the top 5 holdings account for around 60 per cent of the portfolio. After b...
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