Investment is a habit that is best cultivated early. It may seem foolish to think of investing when there is a free flow of money and no illnesses but the sunshine is not for long and once you are over the hill, a meager bank balance could mean a not-so-comfortable retirement.
Early start
The habit of starting to invest early also fits in well with the way the human life cycle evolves from single hood to marriage, to parenthood, to retirement.
Many other factors make investments imperative. An unhealthy lifestyle, rising inflation, work stress, luxurious weekend indulgences, steeply rising cost of education, longer life-cycles and rising health care -all collectively contribute towards a logical argument for making regular and timely investments.
You also need to keep in mind that your savings should be able to give you value when they are needed the most. But for this to happen to you should plan well in advance.
Thus investing your savings in long-term instruments is the first step towards secure retirement planning as it gives you the power of computing and multiplying your principal amount for a safe and happy retirement.
For example, if you start saving at the age of 25 and invest a quarter of your income in long-term investment instruments every year, you could soon see your principal investment translate into a huge fund.
Approaches to retirement
Assuming a growth of 18% every year, your fund could multiply over 100 times at the time of retirement.
Making such investments is the safest bet for a person who does not have the time or inclination to learn the technical jargon of stock fundamental analysis, technical analysis, risk analysis and sector analysis or listen to endless analyst suggestions.
However, the approaches to long-term savings for retirement vary. All investments have a trade-off between risk and return, which form two ends of a spectrum made up of investment instruments. And depending on what part of the spectrum you are comfortable with, there`s a range of instruments to choose from.
For those who would rather be conservative and keep their principal intact, debt instruments such as fixed deposits, government bonds, post office savings and provident fund rate high on the list of must-invest instruments.
Then there are those whose appetite for high returns spurs them to take higher risks. Equities rate very high on the list of investments for these people. But these two categories form a very small minority. Most investors are a combination of the two. They want to keep their principal intact, but also expect high returns.
Early start
The habit of starting to invest early also fits in well with the way the human life cycle evolves from single hood to marriage, to parenthood, to retirement.
Many other factors make investments imperative. An unhealthy lifestyle, rising inflation, work stress, luxurious weekend indulgences, steeply rising cost of education, longer life-cycles and rising health care -all collectively contribute towards a logical argument for making regular and timely investments.
You also need to keep in mind that your savings should be able to give you value when they are needed the most. But for this to happen to you should plan well in advance.
Thus investing your savings in long-term instruments is the first step towards secure retirement planning as it gives you the power of computing and multiplying your principal amount for a safe and happy retirement.
For example, if you start saving at the age of 25 and invest a quarter of your income in long-term investment instruments every year, you could soon see your principal investment translate into a huge fund.
Approaches to retirement
Assuming a growth of 18% every year, your fund could multiply over 100 times at the time of retirement.
Making such investments is the safest bet for a person who does not have the time or inclination to learn the technical jargon of stock fundamental analysis, technical analysis, risk analysis and sector analysis or listen to endless analyst suggestions.
However, the approaches to long-term savings for retirement vary. All investments have a trade-off between risk and return, which form two ends of a spectrum made up of investment instruments. And depending on what part of the spectrum you are comfortable with, there`s a range of instruments to choose from.
For those who would rather be conservative and keep their principal intact, debt instruments such as fixed deposits, government bonds, post office savings and provident fund rate high on the list of must-invest instruments.
Then there are those whose appetite for high returns spurs them to take higher risks. Equities rate very high on the list of investments for these people. But these two categories form a very small minority. Most investors are a combination of the two. They want to keep their principal intact, but also expect high returns.
Pre-mixed!
A number of financial products cater to this growing majority where a pre-determined mix of investment instruments is given to the customer to invest in.
The mix depends on the age of the person, the amount of risk that he or she wants to take and the time period for which they wish to remain invested in that particular product. Typically, these products judiciously divide your investment among various assets classes such as equities, debt funding and money market, giving the best return available over a long-term investment period.
They invest in equities such as `growth stocks`, `value stocks`, `large caps`, `small caps` or `mid caps`? or debt funds such as `treasury bills` and `bonds`. Liquidity, transaction costs and ease of investment are also considered before investing in a particular asset class.
Recently launched asset allocation funds aim to bring in more consistency and stability of returns in an investor`s overall risk profile by not only investing in the above mentioned asset classes, but in an additional asset class - gold.
Such funds include a gold investment in the product mix to provide higher returns in aggressive and moderate options as gold has emerged as a viable investment option in recent times.
Gold supply has come down globally in the last 10 years from 2,650 tons in 2000 to 2,350 tons in 2009. Supply of this precious metal is likely to become scarce as gold availability is further reduced from 3 mg gold in every kg of ore to 0.5 mg gold in each kg of ore.
Even as the supply dwindles, the demand for gold has increased in industrial, currency reserve and jewellery business, giving its value an upside.
In the last 15 years, the price of gold has increased from USD 400 per ounce to USD 1,250 per ounce. India is one of the largest gold buyers in the world and its annual demand has increased from 250 tons in 2005 to 550 tons in the last five years.
Economic growth of over 8 % in the coming years will give a further push to gold prices and its contribution in assets allocation fund will enhance its value proposition in the long term.
If you do plan to invest in an asset allocation fund, keep in mind that the only person who knows what is best is you. For only you know your risk appetite, your ability to wait for returns and your age. Therefore, the time to begin investing is now, for a better retirement.
A number of financial products cater to this growing majority where a pre-determined mix of investment instruments is given to the customer to invest in.
The mix depends on the age of the person, the amount of risk that he or she wants to take and the time period for which they wish to remain invested in that particular product. Typically, these products judiciously divide your investment among various assets classes such as equities, debt funding and money market, giving the best return available over a long-term investment period.
They invest in equities such as `growth stocks`, `value stocks`, `large caps`, `small caps` or `mid caps`? or debt funds such as `treasury bills` and `bonds`. Liquidity, transaction costs and ease of investment are also considered before investing in a particular asset class.
Recently launched asset allocation funds aim to bring in more consistency and stability of returns in an investor`s overall risk profile by not only investing in the above mentioned asset classes, but in an additional asset class - gold.
Such funds include a gold investment in the product mix to provide higher returns in aggressive and moderate options as gold has emerged as a viable investment option in recent times.
Gold supply has come down globally in the last 10 years from 2,650 tons in 2000 to 2,350 tons in 2009. Supply of this precious metal is likely to become scarce as gold availability is further reduced from 3 mg gold in every kg of ore to 0.5 mg gold in each kg of ore.
Even as the supply dwindles, the demand for gold has increased in industrial, currency reserve and jewellery business, giving its value an upside.
In the last 15 years, the price of gold has increased from USD 400 per ounce to USD 1,250 per ounce. India is one of the largest gold buyers in the world and its annual demand has increased from 250 tons in 2005 to 550 tons in the last five years.
Economic growth of over 8 % in the coming years will give a further push to gold prices and its contribution in assets allocation fund will enhance its value proposition in the long term.
If you do plan to invest in an asset allocation fund, keep in mind that the only person who knows what is best is you. For only you know your risk appetite, your ability to wait for returns and your age. Therefore, the time to begin investing is now, for a better retirement.
Source: BUSINESS LINE (06-SEP-10)
