Trap 25. ‘So What If You Are Retired, You Can Also Invest In Equity Assets’

Senior citizens, typically, prefer low-risk investments that offer guaranteed income. This is primarily because the safety of their capital is their biggest concern. Since they also need to ensure that the corpus lasts a lifetime, advisors say that they should invest some amount of money in moderate-risk instruments, depending on individual circumstances and needs.

However, the problem arises when seniors are convinced to invest in equities in a big way, without taking into consideration their long-term financial health. For instance, if a senior is offered to invest the entire or a large part of the retirement corpus in equities, it may be a problem. That’s because equities are highly volatile and market movements can dent your retirement kitty.

On the other hand, a senior who has adequate emergency funds, a regular cash flow in the form of pension, owns a house, and a separate health fund and health insurance may choose to invest a large portion of the corpus in equities.

While investing in equities is risky, there are certain segments within equities that are riskier and are often akin to gambling. These include investing in futures, options, sector-specific or small-cap mutual funds, cryptocurrencies, and so on. Seniors should be particularly wary of investing in these instruments, and should treat any offer to do so as a red flag.

Anuj Kesarwani, a certified financial planner, chartered trust and estate planner, and founder of Zenith Finserve, advises seniors to be wary of high-risk financial products.

He says: “As a senior citizen, you should be very cautious of high-risk financial products. The prices of these products change very frequently, which generally does not suit you. You should prioritise safety, liquidity, and stability in your investments over high returns.”

It is crucial not to be swayed by past returns that someone, whether a friend or an advisor, might use to project future returns. Returns should not be the sole criterion for investment decisions and one should consider one’s own risk appetite. He says: “It depends on how comfortable you are with the fall in the value of your investments. Some people cannot see the value of their investments going down even by 1 per cent, while others are comfortable with even a 30 per cent fall. This is purely psychological and hence everyone’s risk appetite differs.”

So, before investing in a financial instrument, ask yourself: How much loss can you handle? How long can you wait for your investments to recover? How will potential losses impact your life and that of your loved ones?