Deciding the Right Balance between Risk and Returns

Sometimes, even some of the best retirement plans that you’ve worked very hard at achieving are subject to certain unforeseen risks or loss. After witnessing the 2008 financial stock market meltdown, whatever retirement savings accumulated over the years could get wiped out, high inflation rates could eat away at your hard earned savings faster than you planned, with rising life expectancy raising longevity risk, people post retirement may outlive their investments and their accumulated money may not be enough to sustain the desired lifestyle due to personal situations, health care costs which are a few of the unknown.

The one thing that is inevitable is risk – decline in value of an investment during investing. As an investor, one would need to take into consideration the different risks that one may face and how to manage it. Keeping this in mind, making wise investment choices could help diminish risk in a way that helps you reap rewards.

The aim, of course, is to decide the right balance of solutions given the risks that you may face post retirement. For some of you, reviewing and rebalancing your investment strategy may be important, for others, investing less into equities while investing more in safer instruments could be important and for the rest, investing only in safer instruments may be of utmost importance. Nonetheless, for those of you reaching your retirement life or may have already entered that phase, it is important to understand the types of risks that lie ahead and how one may overcome it by protecting their retirement kitty and letting it continue to grow.

Let us look at the different types of risks that you may come across and what solutions you can take to make sure your retirement corpus outlives you.

#1 – Inflation

Inflation can have a big impact on retirees especially those living on a fixed income. Even though various financial responsibilities such as taking care of children’s education, feeding a big family become much lesser, however, other personal duties such as food expenses, paying housing bills cannot be ignored. It is important to know that inflation can affect different commodities differently; food and fuel prices are likely to fluctuate daily, along with volatility. For example, if you have set aside Rs. 3,00,000/- per year for your retirement, you’ll still have the same amount of money – but its value will not be much due to inflation. The Rs.50 toothpaste that you buy today will cost you Rs.80 in 5 years. The value of your retirement corpus will get depleted if inflation is not taken into consideration.

#2 – Interest Rates

The interest rates of savings accounts are already touching the floor. With banks offering lower interest rates, it would be a complete dampener for those surviving on fixed-income investments. Senior citizens and retirees who depend on income from their investments are the ones who are impacted.

#3 – Unexpected Health Care Costs

Due to advances in medical science, there is a general increase in the lifespan of individuals which leads to higher medical expenses that you may not foresee well into your retirement life. The post retirement phase could be as high as 30 to 40 years. Any financial plan should assume long living phase. Unexpected health care costs are a major concern. Long-term health issues such as an accident, illness, chronic disease, cognitive impairment can drain your savings when mental or physical capabilities deteriorate. Ignoring such issues and failing to plan adequately for post-retirement phase may not allow individuals to amass sufficient funds with which one can accomplish all their dreams and enjoy a peaceful retirement life.

A Fund to select part of Asset Allocation Post Retirement

Select Multi asset - Fund of Funds scheme that invests judiciously in a mix of 3 asset classes - Equity, Debt and Gold. This unique combination brings together the volatile equity assets with other relatively less volatile asset classes in the portfolio which is called as asset allocation. Multi Asset helps those investors who are moving closer to retirement or retirees who cannot afford to take high risk investing in equities, but are ok with some amount of moderately high risk to earn an additional return over fixed income with some market risks. While investing in Multi Asset Fund, you can give maximum opportunity to your money to grow during your retirement phase as this fund invests in all 3 asset classes.

Conclusion

Post retirement, earnings come to an end. Many retirees want to follow their hobbies or travel to their dream destinations. It is important to let your regular income continue post retirement to fulfill those dreams but it is also equally important to not let that income erode due to inflation, interest rates or unexpected health costs. If you wish to grow your money and you have some amount of risk appetite, you can look at equities. Remember, asset allocation always plays an important role in the kind of returns your investments generate. Our objective of this article is to help you allocate your assets wisely by keeping risk under control and grow your investments to help you manage your post retirement financial needs. And this can be easily achieved by investing in Multi Asset Fund.

Disclaimer, Statutory Details & Risk Factors:

The views expressed here in this article are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.

Mutual fund investments are subject to market risks read all scheme related documents carefully.