An investment portfolio includes different asset classes, and each one's performance is influenced by various factors. To maintain steady returns, seniors should regularly review their portfolios
Senior citizens need a steady return on their investment portfolio. They can’t afford losses in old age and usually depend on the retirement corpus to meet their financial goals. If their investment portfolio's return decreases, it may squeeze their spending capacity. So, dependence on the retirement corpus makes it crucial for senior citizens to review their portfolios regularly or at least once yearly. Here are some more benefits of timely reviewing the investment strategy.
In the long term, a little deviation in the investment can significantly change the resulting corpus at the end of the tenure. For example, suppose you have expected a return of 12% pa on your investment of Rs 20 Lac where the tenure of investment is 30 years. You didn’t review the investment portfolio during the entire period and at the end of the tenure, you find out that the actual return on your investment was only 10%. So, instead of getting a corpus of Rs 6.94 Cr, your actual corpus would be only Rs 3.87 Cr! So, a drop in return on investment by a mere 2% will cost you a fall in the corpus size by Rs 3.07 Cr. Reviewing your investment strategy could have allowed you to take corrective measures and save you from a fall in the return on investment.
Sometimes you may make a mistake that can have a huge repercussion on your retirement life, but you don’t know about it. Doing a regular review of your investment strategy can help you identify your mistakes and correct them before it’s too late. For example, by mistake, you may be investing in a debt fund instead of an equity fund. You can identify such mistakes by reviewing your investment portfolio and taking steps to rectify them.
One of the important purposes of the investment is to beat inflation consistently and by a good margin during the period of investment. What if the inflation rate exceeds the level, you would have estimated during the investment period? You can know about a change in the inflation rate when you review your investment portfolio regularly and reassess the inflation level as well. Depending on the change in the inflation rate you can also adjust your investment portfolio accordingly.
In some cases, senior people may achieve the investment goal before the planned tenure. In such cases, it becomes essential to protect the corpus by lowering the risk. It can be done easily by portfolio rebalancing. For example, suppose the allocation in equity assets has increased compared to debt assets from your original allocation plan. You can switch the requisite fund from equity assets to debt investments so that the allocation to equity and debt in your portfolio comes back as per your planned ratio or the ratio that you find appropriate at the time of reviewing the portfolio.
Reviewing the investment strategy can help senior citizens protect their retirement corpus, secure a higher real rate of return on their portfolio and achieve their goals on time without taking unnecessary risks.
Authored By: Amit Sethi, Independent Financial Journalist