Investing in the stock market is like a double-edged sword. When the market is booming and making record highs, your investments have the potential to grow spectacularly, comfortably beating inflation. But, on the contrary, market volatilities arising out of various economic factors can negatively affect your return on investments.
Is Total Boycott of the Market a Viable Solution?
Many people might think that they should completely avoid investing in the market and instead invest in traditional risk-free products like bank term deposits or government bonds that can ensure the safety of capital.
However, you might not be able to beat inflation and build an adequate retirement corpus by investing in such instruments alone as they provide very low albeit more predictable returns.
Retirement Planning While Staying Safe From the Market Volatility
As you approach your retirement, you may consider revising your investment portfolio and implementing the following strategies to guard your money against market volatility better while preparing for retirement.
- Increase Liquidity
Investment principals suggest that you should invest most of your money in different investment instruments as holding on to cash is unlikely to generate returns.
However, you should raise the percentage of your cash holding while approaching retirement. A cash reserve can always act as a life-jacket if any of your investment decisions accidentally go wrong.
Moreover, you can earn interest on such cash reserves by keeping them in debt instruments and bank FDs of a 2 to 5 year period.
- Reduce Risk Exposure
Since most of your long term financial goals are potentially realized by now, you should consider reducing your risk by gradually pulling out of market-linked products like equities and mutual funds.
However, it is still advisable to keep a small amount invested in the market to have a proper balance in your portfolio.
- Invest in Non-Linked Non-Participating Plans
Such plans offer the benefit of investing and growth of capital without any exposure to the market. While such plans might offer lower returns than the market-linked product, you can have peace of mind knowing that your capital will be safe.
Besides, such plans can also offer a regular pension for a pre-defined period or a lifetime after retirement. Thus, you get the benefit of financial stability post-retirement without worrying about the markets.
- Invest in ULIPs
Unit Linked Insurance Plans (ULIPs) offer the dual benefit of investment and insurance. While a part of the money goes towards life insurance, a portion goes towards investment in equity or debt instruments. Apart from giving you significant tax benefits, ULIPs let you diversify your pool of money into two important areas – insurance and investment.
- Refrain from Taking Emotional Decisions
Sometimes a mass hysteria occurs in the market where everyone is selling or buying without any logic. Refrain from taking financial decisions based on such hysteria. Instead, it is always better to maintain financial discipline and stay on the course based on your pre-defined goals.
Eventually, proper retirement planning can help you smoothly sail through any market volatility. Furthermore, you can also build an ample retirement corpus in addition to preserving your capital for a long and happy retired life.