Investment and Retirement Planning

Have you lately looked at your investments and ensured if you have planned your retirement effectively? Have you done any retirement planning at all? Do you have enough to live the current lifestyle when you retire?

These are one of a few questions that I ask people in their late twenties to understand and make them realize the importance of ‘Retirement Planning’. Lately I’ve come across many people that either haven’t invested at all or not done them right. In this blog I talk about the importance of investments and retirement planning and how to manage your wealth.

Note: I’m NOT an expert in investments with neither a formal education nor career in it. I speak of my experience and an early start through which helped me learn how to quadruple your wealth and moreover based on inflation rates be able to foresee and set your retirement expectation.

 Investments and Retire Planning

By definition : an action or process of investing money for profits.

From the definition itself it is clear what investments are entitled to do. However its gets more complex when you start asking the right questions.

  1. Where do I invest?
  2. When do I invest?
  3. How much should I invest?
  4. Am I making profit?

Usually getting a good relationship manager is KEY. However it is a popular known fact that we NEVER get one. I define a good relationship manager as someone who would understand my life goals, my priorities and my liabilities before recommending me any investment products. It is also valuable to understand spending habits before offering any investment advice.

You should first start by making a list of your expenditures. Investments can ONLY be done if you have some dough at the end of the month. Many complain that we don’t have much left at the end of the month to invest. This is where you need to start. Note your expenses. Let it be from food and drinks to utility bills or EMI’s. Some are mandatory expenses and some you can do without. It is imperative you separate the ‘Need’ from the ‘Luxury’.

Once you have made a list of categories your expenses go into, you will observe an automatic sense of control in the areas that are NOT really required to be spent. You need to control those expenditures to be able to initiate investments.

Generally speaking people should start investments early. The thumb rule is – The earlier you start the more risk you can take, the more profit you will reap. However investing early is not the only thing that one needs to ensure but also taking into consideration the Inflation Rate.

Investing to beat inflation is an important aspect of retirement planning

Typically in a normal lifespan here is how your investment portfolio should look like if you start by the age of 25. Starting early gives you leeway.

Ages: 25 to 40– While in this age group, your income levels haven’t peaked yet and your expenditures may remain to be higher. You will want to buy your own house, travel the world, go on dates, get married. Hence about 15 to 30% (or more) of the annual income should be saved. Your portfolio should be dominated by equities and/or equity funds. These should comprise 70 to 80% of the investments. To balance out the portfolio, one could rely on stable yet tax efficient investments such as PF, PPF and debt and debt-oriented mutual funds to manage the remaining risk of 20 to 30%.

Ages 41 to 50– In this age group you are at your career peak. Typically it wouldn’t get better than this. You will be busy with funding your children’s education, buying your holiday home, buying yourself an expensive car (really), planning your 25th Wedding Anniversary party. But also keep in mind you’re earning a big fat Pay-check during this time. But consider health risks and age risks as well. Hence you should save around 30 to 40% of the annual income. As the time horizon to retirement is still long enough, equity and/or equity funds should continue to be a crucial part of the portfolio i.e. around 60% or more. The balance can be invested in PF, PPF and other debt and debt related mutual funds. Review your insurance plans, especially Life insurances and Medical insurances.

Ages 51 to 60– At this stage of one’s life, the time horizon for retirement starts shrinking. Therefore, the prudent thing to do would be to follow a slightly conservative approach. However, it is important to remember that it may only be a few years before one retires, but one may need to depend on retirement funds for many more years. Therefore, the key is to maintain a portfolio that will continue to grow for many years after one retires. Equity and/or equity funds should still be a part of the portfolio, though in a moderate percentage. One should start increasing their portfolio size towards the debt side to negate the risk due to the age factor.

Wealth Management

When they say read the offer document carefully before investing, it is like the Cigarette packet contains a warning sign that says it is hazardous and that we take the ownership of doing it on our own. Bad analogy. Investments cannot be entirely compared to cigarettes however the warning they both give us can. There are so many bad products and investment instruments out there and to top it up evil or selfish relationship managers prying our money.

It is very very very (and i’ll repeat – “VERY”) critical to read the offer document and understand it carefully. In my experience once reading an offer document – specially areas such as entry and exit loads, lock-in periods, and in cases of ULIPs – the investment period, the surrender charges at different intervals, the investment sectors, etc; you are aware what you are stepping into and are aware of what actions need to be taken – they may be time based or event based – eg: 5 year lock-in periods (time based) or incase of death of primary holder, etc. So better read the offer document and make notes and build your action points.

Moreover I’ve seen wrong products being sold to wrong age-groups and no awareness being given about non-payment of premiums or diversifying portfolios in cases where they are unable to meet the payment need thereby destroying the actual value that was expected from the product.

Apart from knowing where to invest, who to invest through and how much to invest; it is very important to be able to track all this information in a central system which is easily accessible. To track your wealth you should make use of a good wealth dashboard product. Excels are good if you’re good with them however they cannot get the latest NAV/fund value or other updates. I use the wealth dashboard at which is an excellent tool to have all your investments in one place to track. It does require some effort and time to add them in but it gives me a consolidated representation of my investments along with excellent recommendations on a few products. I conduct most of my research on investment products from there and yes of-course – CNBC. If investment planning is rocket science and you would like to get into it, I would advise you jump on the wikipedia for investments – “Investopedia

I hope you find this article interesting and worth for your investment planning. I have loads of more to talk about bad investment planning but that in another blog.

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