Most senior retired citizens prefer to invest in fixed-income securities due to the low volatility they offer, making them a safe investment bet. However, this safe investment bet comes at a cost – with interest rates of most fixed-income investment products submerging, achieving a good rate of interest on their fixed-income securities is becoming quite difficult for senior retired citizens. What’s more, an increase in the life expectancy of people have made things worse for these retired individuals. This makes them contemplate if they should invest in equity markets to earn substantially higher returns on their investments. Experts believe that it may be a good idea for senior citizens to invest in mutual funds online. If you are wondering how safe this idea for retired senior citizens is to invest in equities post their retirement, you have come at the right place. We will understand the same in this article.
Before choosing from the different types of mutual funds available to an investor, one must evaluate how much they can afford to take that extra level of risk to fetch higher returns. This is because risk and returns are like the two sides of the same coin – one cannot exist without the another. An investor must understand that to fetch higher returns, they must be willing to take higher risks and be comfortable with the idea of their investments being exposed to high volatility especially in the short run. Often retired individuals are advised by their friends and relatives to stick to fixed-income securities and stay away from equities. However, this is a myth that a retired investor must solely invest in fixed-income investments. One can easily invest in equities if they plan to invest for a long term. However, you may need to alter the asset allocation of your investment portfolio basis your financial goals, investment horizon and risk appetite. If you wish to further decrease the risk exposure to their mutual fund investments, they can consider diversifying their investment portfolio across a wide variety of instruments which might include securities such as large-cap equity funds and dynamic asset allocation funds (DAAF). One can also consider allotting a part of their investments to multi-cap mutual funds. Having said that, retired individuals must try to refrain themselves from investing in high-risk equity funds such as small-cap equity funds, mid-cap equity funds, thematic funds and sectoral funds.
Factors to consider before a retired citizen invests in equity investments
One must be aware with the fact that the money lost during a retired investor’s life period would be a total loss of income in case of no new earnings. Hence, one must ensure that they invest in equity funds keeping their risk appetite and regular income in mind. The safety of principal is a crucial factor to consider, especially for senior citizens who are currently enjoying their golden period of life. Another important aspect to consider is the liquidity offered by the mutual fund investments. Investment options that have a long lock-in duration must be avoided by retired individuals. Happy investing!