Which Mean of Interest rate risk

Mistakes in Investing for Retirement and how to Fix Them

He started early, saved regularly and never dipped into his retirement kitty. Yet, when Punit Chahar took stock of his retirement savings, the corpus was far smaller than what he had expected. “I focused entirely on risk-free investment options such as the Public Provident Fund and bank deposits,”

His mistake: Started saving for retirement very early, but played too safe. After almost 13 years of investing in PPF and fixed deposits, he realised he will not reach his target.
How he fixed it: Two years ago, he started shifting his savings from fixed deposits to equity funds. He currently has 60% allocated to equities.

In Delhi, businessman Vivek Bakshi is ruing the day he took a friend’s advice and gave his retirement portfolio a dash of equity.Though experts recommend this, Bakshi made fundamental mistakes when he went shopping on Dalal Street. A newbie, he invested in stocks directly, and that too when retirement was just a few years away. Though the overall market was booming in 2014, he lost around Rs 4 lakh in one month.

Chahar and Bakshi represent the two extremes of the risk spectrum. One took too little risk with his retirement savings and lost the opportunity to build a large corpus. The other took too much risk and and saw his wealth erode.

Experts warn that equity investments should not be done with a shortterm horizon. “It is harakiri to invest in stocks directly to make up for the shortfall in retirement corpus,” says Ashish Shanker, Head-Investment Advisory, Motilal Oswal Private Wealth Management. At the same time, relying too much on fixed income options for the long term can also be risky. “In the long-term, investments in fixed income products are just as risky as equity investments are  in the short-term,” says Atul Singh, CEO, WGC Wealth.

This week’s cover story looks at common investing mistakes that can ruin the retirement plans of an individual. Some of these mistakes, like Chahar’s over-dependence on fixed income products, can be fixed. He realised his mistake in time and was able to affect a course correction. Two years ago he started moving his retirement savings from fixed deposits to equity funds. The 42-year-old now has about 60% of his retirement corpus in equity funds.

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