Retirement is the stage where one should relax and reap the benefits of all the hard work. This can only be possible when he/she has saved enough during the working phase. Not just saving, where and how one invests is equally crucial.
There are risks associated with each investment option. While some carry the risk of delivering losses, others may be illiquid.
As an advisor, it is your job to make sure that your client’s portfolio is safe in all aspects. Try looking out for answers to these questions to identify safety problems in the portfolios.
How much investment is in low-risk instruments?
No investment is completely safe, but some are significantly safer than others. Such investment options include fixed deposits, government bonds and top-rated corporate bonds. Also, there are government schemes like NPS, PPF, Atal Pension Yojana, etc.
Your client’s retirement portfolio should have a significant amount invested in these instruments. Though they won't deliver high returns, there would be a guarantee of sorts on returns and the safety of principal.
Is your clients' portfolio inflation proof?
Inflation eats into our money's ability to buy things year after year. Not accounting for it in the retirement plan could prove costly for your clients.
Portfolio cannot be made inflation proof by just investing in the safest instruments. The problem with such options is that the returns they offer are not much higher than the average inflation.
A good amount of the portfolio should be invested in equity schemes to enhance returns.
Can the assets find buyers in the time of need?
Other than the risks of losing principal and the loss of purchasing power due to inflation, investments face illiquidity risk. Assets which are difficult to sell are known as illiquid assets. Such assets may include real estate, stocks of not well known companies, art, among others.
Make sure the portfolios are free of assets that are highly illiquid.
Are there any bad investments?
In search for high returns, many a time investors get exposed to fraudulent/high risk assets. One should avoid any investment that promises quick and high returns. Also look out for investments that seem confusing i.e., there's no clear cut investment strategy.
