How is Asset Allocation Linked to Retirement Planning?

How is asset allocation linked to retirement planning?

PNB MetLife 07-07-2018 11:24:51 AM
How is asset allocation linked to retirement planning?

In simple words, asset allocation can be defined as the process of distributing your investment in different asset categories. These multiple investment avenues include bonds, shares, debentures, real estate, gold, fixed income, and many more.

You might be wondering; what role asset allocation plays in your life. The prime objective is to minimize your risk and maximize your returns. Read More

What is asset allocation and how does it differ from person to person?

Asset allocation defines how well you distribute your funds among your investment tools. It also differs based on age. If you are 25 years old, and have a longer duration in which to grow your investments, then you can invest in high-risk, high returns investment avenues.  And, for someone in their 50s; you should move towards low risk, and safe investment options. When your finances have a larger scope to grow, investing in risk-based options is feasible.

Additionally, it is very important to prepare for your retirement by investing in the right retirement policy. It goes a long way in determining the quality of your life post-retirement.

How to plan your investment portfolio for retirement?

  1. Diversify your portfolio: Do not put all the eggs in one basket. It is essential to diversify your portfolio. During economic breakdown like the recession, you should invest in gold or gold ETFs. Even more, when the market is bullish, then you should invest in stocks and shares. It will help you get the best returns as well as stress-free retirement.
  2. Opt for health insurance: A stressful work life can take a toll on your health, having a health insurance will help you secure your finances for those hospital bills. If you opt for a health insurance at an early age, the premiums you will have to pay will be lower than when you opt for in the later years of your retirement.
    You cannot know today how much money you will spend on your medical care post-retirement. Believe it or not, there are many healthcare treatments which are not covered under medical claims. Even though you never know how much money you need to shell out on medical care, it is better to be prepared for the future. 
  3. Invest in high risk financial avenues from an early age: When you are planning for your retirement savings at an early age, then stocks and bonds should be preferred.  Shares/stocks are also known as equity investments. If the investment is made for longer durations, then history shows that it gives 10% returns annually on an average. Equity investments are most volatile and risky. Therefore, they are not advised for persons close to retirement.
  4. Move towards low risk investments in your mid 40s: Fixed income investments like bonds are suggested for the people between the age group of 45 to 55 years. They produce a good and reliable cash flow. Further, they are also very less volatile in comparison to equity investments.
When you are close to retirement, you should emphasize more on fixed income options; switch from equity investments to debt investments, lower risks, and higher liquidity.
A penny saved is a penny earned, so build your reserves now for safe and sound retirement planning.