Have you ever visited a circus? The Trapeze artist performs amazing feats on the swing!. He is able to do those stunts freely because there is a safety net below to protect him.
Is there a safety net in place for your investment portfolio…especially the future retirement income that is being planned for?
Lets look at some of the risks the portfolio will be subject to
1) Interest rate risk – Declining interest rates will make a dent in your retirement income.
2) Inflation risk – Rising prices of goods and services will lead to decrease in your purchasing power.
3) Market Volatility – After age 60 we want less of this.
4) Income Tax – Further reduces your cash in hand.
Its important to put a safety net in place against these risks. At least 30%of your future income should be protected (Hedged) from these risks (β). Remaining 70% can be in a mixture of equity and debt as per one’s risk profile.
The Hedged part of your income will give guaranteed, tax free income for long period (upto 30 years), effectively hedging against the above risks. There are good options available to achieve the purpose of hedging.
The equity +Debt part of your portfolio will help you beat inflation.
Ensure the safety net is in place even as you get some amazing results from your risky assets.
Lazarus Dias, MBA Finance, CIS, CPFA, RFC, CLC, MSLC
Trainer, author of 4 books www.freedomfactory.in
augustine.mendez@freedomfactory.in
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