Each type of investment has distinct advantages and disadvantages, and because each tends to behave differently in different types of economic mood swings. Your retirement portfolio should be broadly diversified and well balanced to last for your and your dependant’s life time. Your may have various financial assets viz. shares, debentures, gold, bonds, life insurance, annuities, mutual funds, fixed deposit, company deposits, PPF, monthly income schemes, national savings certificates, etc in your portfolio. In addition to this it may also contain tangible assets that can take the form of gold, silver jewellery, precious stones like diamonds, real estate, painting, carvings etc. and other collectibles. You may also have some insurance to cover risk.

But, how can you be sure that your portfolio has all the components adequate enough to cover all your retirement needs? Let’s review various factors that you should consider while building your Retirement Portfolio.

Your Attitude Towards Risk

Firstly, understanding your attitude towards investment risk is very important. Normally we come across two types of investors :

1. Risk takers: They are willing to take high risk to get high return on their investments. They have high-risk tolerance. Their portfolios consist of equities, growth schemes of mutual funds, unit linked plans, variable annuities, real estate and long term deposits. The proportion of risky assets in the portfolio is higher as compared to safe assets.

2. Risk averse: Generally, a large number of people are risk averse. They want to optimize the rate of return on their portfolio with minimum risk. They invest in diversified assets to minimize the risk of their portfolio. Their portfolio of assets varies from low return- low risk fixed deposits to high risk-high return shares. But a smaller proportion is devoted to equities and growth schemes of mutual funds and a large proportion is devoted to low and medium risk assets. Their investments include short-term deposits, fixed/variable annuities, government bonds, mutual fund units or monthly income scheme.

Both these investment strategies are good, however you need strike the right balance depending on your age, your investment time horizon and your current financial situation. Remember, the primary objective of retirement planning is to generate regular income after retirement.

Let us assume that the person gets a regular income of a fixed amount. This amount may be sufficient to start with. But inflation can result in increased financial needs over a period of time and the regular fixed income may become insufficient to meet the needs after a period of time. Hence, your portfolio should beat the inflation so as to generate a comfortable stream of income throughout your life. This is only possible, if you take balanced approach and review and adjust your portfolio frequently.

How to determine the right portfolio mix?

You can follow a general rule of thumb (i.e. 100 minus your Age) to determine the allocation to risky assets in your financial portfolio. So, when the retirement is long way off, it is desirable to take greater risk to accumulate wealth but as a person reaches the retirement date he/she should change his attitude towards risk and adopt a more risk-averse investment strategy.

Rule of Thumb : Determine your portfolio mix

Fixed Rate Investments

Market Linked Investments