Senior citizens should consider investing in equity due to their increased life expectancy. With advancements in healthcare and improved living conditions, people are living longer than ever before. This increased life expectancy brings about a significant challenge for seniors: the need to sustain their finances and ensure a comfortable retirement for an extended period.
Equity Can Give Higher Returns Than Traditional Fixed Income Instruments
Investing in equity will provides senior citizens with the opportunity to grow their wealth over the long-term. By allocating a portion of their investment portfolio to equities, seniors can take advantage of the potential for capital appreciation and higher returns compared to traditional fixed-income investments. This will also allow their investments to continue growing and provides a potential source of income during their retirement years.
Equity investments can also help senior citizens combat the impact of inflation. As they live longer, the cost of living and expenses tend to rise. Fixed-income investments like fixed deposits (FDs) may not provide sufficient returns to keep pace with inflation, eroding the purchasing power of their savings over time. Investing in equities can help seniors maintain the value of their wealth and potentially even outpace inflation, ensuring that their financial resources remain adequate throughout their extended retirement years.
Says Satyen Kothari, founder and CEO, Cube Wealth, a wealth management firm: “Equity as an asset class is for medium- to long-term wealth creation. If a senior citizen has such objectives, they should definitely invest. Age shouldn’t be a defining criterion.”
The Need To Manage Risks
Senior citizens should, however, first focus on a regular income and invest the surplus in equity so that they can stretch their retirement savings.
“They should choose safer options in equity, such as blue chip stocks and Nifty index funds,” says Kothari.
One may also choose to invest in large-cap mutual funds.
Nowadays, it is likely that one might even live up till 90 or more. Equity investments during the early years of retirement can help give one’s retirement corpus a much-needed boost. In the early years of retirement, one can have up to 30-35 per cent in equity and then reduce the equity allocation by 5-10 per cent every decade.
Adds Kothari: “The risk parameter should be proportional to the tenure when they want to reap the benefits of their investments. The shorter the term, the lesser the risk that should be taken. One should not invest in equity with less than three years of time horizon.”