How To Allocate Your Retirement Corpus

An expert look at diversifying your retirement assets 

During the retirement years, asset allocation and investment product selection are always challenging decisions. There is no fixed rule and the individual asset allocation is based on the investor’s age, risk appetite and post-retirement goals.

When we work with our financial planning clients at ithought , we have experienced different cases. For example, extremely conservative investors invest 100 per cent of their retirement corpus in Fixed Deposits (FD) and Government bonds. The investor who has been a market participant all through life, wouldn’t want to shift to debt instruments and would predominantly invest in equities even after retirement. Both cases are extreme as the risk is not being diversified. The purpose of asset allocation is to spread the risk and also make inflation-beating returns. Here's a look at different asset classes.

Equity: 

One should consider having at least 30 percent of the financial assets in equity. Equity as an asset class would ensure that the rising prices and inflation are taken care of in the long run. Options for this asset class are equity shares, mutual funds, structured equity products like Alternative Investment Funds (AIF) and Portfolio Management Services (PMS), among others. However, it is essential to pick the instrument through complete research as the risk is the highest in this asset class.

Gold: 

Gold as an asset class is a hedge against inflation. It essentially helps in portfolio diversification when other assets like equity and debt don’t do well. It may not give consistent year-on-year returns, but gold sure has a store of value. One can choose between Sovereign gold bonds, Gold ETFs and Gold mutual funds.

Debt: 

During your golden years, debt as an asset class brings stability and security to the retirement corpus. Though the returns provided by these instruments are low, debt can be considered for generating consistent income. Options for debt instruments are FDs, mutual funds, bonds, government securities, senior citizen savings schemes, annuity schemes and other pension plans by the Government. However, the drawbacks in most of the debt instruments are the lock-in period, taxability of interest income and interest rate risk.

Real estate: 

Who wouldn’t like to have a retirement home nestled near a peaceful hill station? As we all know, real estate properties are immovable and may not give us flexibility and returns like financial assets. And hence, real estate investments shouldn’t form more than 40-50 per cent of your overall asset allocation.

Wherever you are on the retirement journey, working with a financial planner could bring in clarity and direction for managing the money!