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May 15, 2012, 03.40 PM IST
The corpus that you build for your retirement depends on 2 broad factors: the choices you make, and the behavior of the financial markets.
Consider the first. Can you imagine what your retirement life would be like if all the choices you made were absolutely perfect? If you didn’t make a single retirement planning mistake, if every time you invested, it was according to plan, in the right asset class, in the right instrument, in the right option and at the right time? Wouldn’t life be grand.
In the spirit of achieving that investing perfection, lets educate ourselves on What We Need To Do.
Let’s get started.
If you don’t want to hire a planner, do it yourself. We have a lot of material on our website including calculators and tools that will help you. Just be sure to have a plan. Not just for retirement, but for all your life goals such as your child’s education and marriage, purchase of that second home you want to own, regular foreign vacations and whatever else you want and can safely afford.
2. Diversify & Rebalance: Don’t make the mistake of thinking that it’s all about equity / property. You must look at a certain proportion of your wealth in different asset classes such as debt and gold.
There’s a thumb rule you can follow to know how much equity you should have, and it’s got nothing to do with your age. It’s got everything to do with your investment time horizon.
Also read our article on 4 Investment Myths Busted .
3. Save Now, Spend Later: It’s true.
The numbers are straightforward: If you invest Rs. 10,000 per month for 10 years, you will build a corpus of Rs. 27.50 lakhs at a growth rate of 15% per annum. Increase this to Rs. 12,000 per month, for the same time period i.e. 10 years, and you’ll build a corpus of Rs. 33 lakhs. Increase this to Rs. 14,000 per month, and you’ve got Rs. 38.50 lakhs.
It’s a simple matter of the time value of money and the power of compounding.
4. Don’t spend more than you have to on the taxman: Paying taxes can sometimes leave you with a ‘what a waste of money’ feeling. In order to avoid this feeling, and also to save and invest more money, go through the following little tips:
In Conclusion: Planning for your retirement is simple. Once you create your plan, you start investing, and you just go on investing through bull and bear markets. Select good mutual funds and other investment instruments, with a strong track record. Don’t try to time the market, don’t churn your portfolio.
Time is a valuable asset and you should make the most of it.
PersonalFN is a Mumbai based Financial Planning and Mutual Fund Research Firm.
May 25 2013, 16:36
- in Technicals
May 25 2013, 16:36
- in MARKET OUTLOOK