Middle-aged people should take only moderate risk

  • Insurance cannot be an investment because it is meant for a different purpose
  • Parvinder Singh and Guneet Kaur know the value of having the right equity balance in their portfolio

Before meeting a financial planner, Parvinder Singh, 39, and Guneet Kaur, 36, thought that investing through online platforms meant investing in direct funds, which isn’t always the case. Also, they weren’t investing a lot in equities but felt like they had deep equity exposure. “Earlier, our asset allocation was skewed. Investment in equity was only 31%. We had 11% in debt, and 46% in real estate. This was before we met the financial planner, when we were in a make-believe mode that our equity allocation was pretty good," said Singh, who is a sales executive based in the Netherlands.

The couple now works with Piyush Khatri, founder of Sahastha Financial Consultants, to manage their investments in India. 

First steps 

The couple wanted clarity about their financial life and gain control over their cash flow. “I wanted to know what I was worth. Is it only people like Bill Gates and Warren Buffett who can have a net worth?" said Singh. 

Eventually, the plan did give them some idea about where they stood financially, and the journey they had to take to secure their future. “Working with a financial planner helped us evaluate how far we were from meeting our money goals. The planner cleared the cloud of doubts we had and addressed our concerns regarding our future," said Singh.

It could get overwhelming to look at the staggering figure retirement calculators churn out but setting the right goals, working towards them systematically and revisiting them regularly can help, said Khatri.

Singh was already investing in some mutual funds when he started the plan. “We made a comprehensive financial plan. We set goals like retirement and child’s education and aligned his investments to the time frame of the goals. We also undertook risk management where we scrutinised the existing life, health and accidental insurance and advised sets of correction and introduced an emergency fund," said Khatri.

The couple realized that they needed to invest more aggressively in equities to meet their long-term goals, including retirement and their daughter Mishka’s education. “I am a risk-taker but our investment plan wasn’t doing justice to my risk appetite and goals," said Singh. “Khatri gave us the assurance and clarity on framing and executing a simple goal-based plan." 

Another thing that Singh realized was that his asset allocation should be in line with the time horizon, and that different kinds of assets are meant to meet different kinds of goals. The planner helped him understand that one must not invest in equities for short-term goals because market volatility could disturb returns. Also, he told the couple that moderate equity exposure was required for medium-term goals and high equity exposure was advisable for long-term goals.

Middle-aged individuals like Singh must, ideally, take the moderate risk approach, said Khatri. “If you have already accumulated a significant sum in your portfolio through prudent investments, focus on protecting the already accumulated portfolio and streamlining your investment plan," said Khatri. 

The lessons

Like every other middle-class family, the couple has goals such as bringing up their child comfortably, travelling and having adequate financial security. However, there are a few money mistakes they don’t want to repeat. Singh said he regrets not starting his investments early on. “I wish I started investing from my first pay cheque. Warren Buffett sold newspapers as a kid but invested that too," said Singh. Investing in lazy financial products like bundled insurance plans because their relatives advised them to buy them is yet another mistake Singh regrets. 

The couple said just spending conservatively and investing the balance while assuming that you would have enough for retirement is not the right approach to planning. “It is important to let actual goal-based accounting defend this presumption," said Singh.

The NRI couple is now planning to get rid of their non-liquid investments in real estate in India. “Owning a car or maintaining a house in India is a pure burden for us as we don’t live there," said Singh.

He said the current generation is way smarter and they have a lot of options to choose from. He said, when his daughter grows up, he will urge her to invest early, spend carefully, and let her money grow wisely. The couple hasn’t decided on whether or not they would move back to India, but their priority right now is ensuring their investments give good returns.

What I learnt

1. Insurance cannot be an investment because it is meant for a different purpose

2. To not fret over short-term market volatility 

3. Importance of diversifying investments

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