It has become quite common for people in their forties to suddenly stop what they have been doing and ask themselves deep questions about life and its meaning. Now, while we don’t recommend a bout of a mid-life crisis, it is a good time to step back and take a good look at your investments. Regardless of how well your portfolio is performing, it is important that you slowly shift gears to create a new investment strategy.
This article will help you to smoothly carry out this transition
- Debt or equity
Equity is one of the best investment avenues that offers great returns and beats inflation consistently. However, it carries a large amount of risk. As the market can be quite unpredictable and volatile, there is a greater chance of losing money. On the other hand, debt investments are less risky and offer assured returns.
As an investor nearing retirement, it is safer to consider debt instruments to avoid the risk of big losses. This doesn’t mean that you shift all your investments from equities to debt. Simply reduce the ratio of equity holdings in your portfolio.
- What about market cap?
The next thing you need to check is market capitalization. Is your portfolio invested heavily in mid-cap and small-cap funds? If the answer is yes, it indicates that you have a large risk appetite as an investor. Nothing wrong with that since small-cap funds generally hold the potential to become big and offer gigantic returns. But it might be time to bet on a different horse.
Large-cap funds might not provide the same excitement but they give sure and steady returns. Invest in large blue-chip companies to decrease chances of volatile shifts in price movements.
- Jettison the junk
As a young investor, it is alright to experiment and take risks. After all, you have a lot of time to cover up any losses that could occur along the way. But now that you have reached a certain age, it is best not to indulge in too many unconventional choices. In addition, you will be better off by getting rid of those under-performers lying around in your portfolio. Don’t look only at profits; instead, compare them with peers and other benchmarks. No point holding onto those funds if they have not been doing well.
- Goal oriented investment
If your age is nearing the half-century mark, it is necessary that you list out your goals and start working towards fulfilling them. For instance, you need to amass a good lump sum if you have to provide a college education to your child. For this, you could consider booking your profits from equities and investing the same in safer instruments like debt funds or fixed deposits.
- Tax saving instruments
You could also consider investing a portion of your fund in tax-saving instruments too. Equity Linked Savings Schemes (ELSS) is a good option in this regard. In addition, it is worth looking into other safe options like Public Provident Fund (PPF), government bonds and fixed deposits to secure your retirement.
Heraclitus, the great Greek philosopher said, “Change is the only constant in life.” So as you grow older, it is only natural for your portfolio to change and evolve. As you approach your retirement, it is necessary that your investments reflect your lifestyle and future goals.