I’m in my early 50s and have about R2, 40,00,000 in savings. I tend to stick to bank FD and PPF accounts, as I was scammed in the past. What’s the safest way for me to invest this money? I will be retiring in 2029, is this amount sufficient? My wife is a housewife, and I have a daughter (for whose marriage I have some other FD not included in the above). Needless to say I do not have any pension and I have medical insurance.
Answer:
Your urge to play it safe is perfectly understandable. You already know from bitter experience that there are people out there who prey on investors by conning them outright or putting them into investments that are not suitable for their situation, and expensive to boot. Having said that, you must also learn about the risk of inflation. At age 58 when you retire, you are looking at a possibility of living till 100.
The financial markets can be scary, even when you’re investing in legitimate investments. For example, you can invest in a GILT fund (which invests only in government securities!) and lose money when interest rate changes. Even though the share market has been going smooth since rebounding from the financial crisis, and has been hitting new records of late, at some point share prices will tumble big time. Why? because that is the nature of the markets.
The reason is that bank fixed deposits alone might not provide the returns you will need in REAL TERMS i.e. after inflation and taxes to maintain your purchasing power throughout a post-career life that could last 40 years!
This means that to avoid having your standard of living slip over a long retirement, you need to invest some of your savings in a diversified portfolio of equity and debt funds. Still, investing in a portfolio of mutual funds—ideally, will improve your chances of earning returns that can stand up to inflation and taxes over the long term. You should be taking a 10-year view on the equity investments and a 5-year view on Income funds.
I would think your R29 lakh in PPF should remain there till you are past 60 for sure, and maybe past 80 too! You’ll still want to invest enough in such products to handle any outlays for emergencies and to cover, say, 5-6 years living expenses.
And assuming you do decide to invest in a portfolio of equity and debt funds, you want to be sure to do so in a way that balances risk and return in a way you are comfortable with.
You want enough equity in your portfolio to generate returns that can help maintain the current lifestyle, and increase the chances that savings will last as long as you do. A big equity portfolio might also scare you into bailing out shares when it falls say 8% in one month! It can be frustrating for a beginner, and scary of course. Your portfolio should be able to eat well and sleep well too!
Most newcomers who come into equity at a late age in life restrict their equity holdings to somewhere between 30% and 60% of their overall portfolio. There are others who will go for a higher or a lower percentage. Get an advisor and decide on your portfolio mix. See what works. Are you able to sleep well?