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Last Updated : Apr 22, 2017 06:39 PM IST | Source: Moneycontrol.com

To retire rich, here's why you must put 20-35% of portfolio in equities 

Retirement planning is done taking into consideration all the asset classes, but if you invest a sizeable amount in equities for the long term, being a crorepati will not remain a dream anymore.

Kshitij Anand

Moneycontrol News


Are you in the age bracket of 30-35 years and think that it is too early to start planning for retirement? Think again. Indians are great when it comes to stock picking but most of them shy away from planning their retirement, which is an alarming sign. 


According to a survey conducted by a global investment banking firm last year, HSBC said that 47 percent of working people in India have not started saving for their future or have stopped or faced difficulties while saving.


Retirement planning is essential and if you trust just this asset class (equities), the stock market could turn out to be your best friend when you turn 60. 


Retirement planning is done taking into consideration all the asset classes, but if you invest a sizeable amount in equities for the long term, being a crorepati will not remain a dream anymore.


“It is wise to build this strategy in the portfolio where we have the right mix of asset classes that enables a value buying of the equities at every dip and book profits at every surge of the markets,” Dinesh Rohira, Founder & Chief Executive Officer of 5nance told Moneycontrol


If you are a long-term investor, chances are you may well reach your crorepati dream before you turn 60, but in between that time you have to also take care of other goals such as buying a car, a house, getting married and have children etc. which all translate into monthly expenses. 


But when we talk about retirement, we are talking about a separate sum of money which you should allocate from your portfolio towards achieving your retirement goal. Planning for retirement should happen as soon as you start earning. 


“Starting to invest early in life is key to building an excellent portfolio,"
Vijay Singhania, Founder-Director, Trade Smart Online told Moneycontrol. "In the case of retirement planning, equities will play a bigger role as the returns over a longer period of time are much higher.”

He added: “In case one is well equipped with stock picking then he should follow Stock SIP and regularly invest in blue-chip stocks. Here, he will enjoy the benefit of compounding and hedge his portfolio against inflation.”

Mutual funds


In case you are not one of those expert stock pickers then go for mutual funds because investing in the stock market, which is the barometer of the nation’s economy, is the most effective way to be wealthier in the long-term. 


“The best way to invest into mutual funds is SIP (Systematic Investment Plan). Let’s take a look at a scenario wherein if you saved Rs 5,000 every month from the month of your first salary to your month of the last salary 5000x420 months (35 years) = Rs 21 lakh,” Sanil Kumar, Associate Director at Geojit Financial Services told Moneycontrol.


“This will fetch you a meager return of 12 percent per annum but the total amount will be Rs 2.75 crore and if you delay this investment by just two years, you would have Rs. 1.2 lakh not invested but you would lose Rs 7.41 lakh from your returns,” he said. This example shows that how a delay in investments would cost you.


How much should you invest? 


Retirement is inevitable and thus it should be planned with increased diligence. If you are in the age bracket of 25-50 years chances are that you may have different goals to achieve and for that reason you should increase your investment for retirement using step-up approach. 


“Retirement planning is all about striking a balance between the emotional and logical aspects of prioritising the investments for life goals. With close to 20 years until retirement, one can start with 15-20 percent of the total corpus for retirement planning,” said Rohira of 5nance.


“The investments for retirement should be done with a step-up approach where you keep increasing the amount of investments with each passing year to make good for the lost time. This approach will ensure that you do not compromise your current lifestyle and other goals and factor in the discipline of investment for retirement as well,” he said. 

Abhimanyu Sofat, VP, Research at IIFL, suggests that investors allocate about 30-40 percent of their portfolio towards achieving their retirement goal.
First Published on Apr 22, 2017 10:35 am