Equity investors on the verge of retirement in India or have retired often wonder how to manage their stock portfolios. They would have fulfilled most of their family responsibilities, have less or zero debt and might be enjoying a regular income from multiple sources. They would also have significantly more time on their hands to research buying opportunities. However, their risk-taking appetite may have been reduced.
Here are 7 ways to manage your stock portfolio during your retirement in India
1. Set an investing budget
Most individuals might assume that expenses would drastically reduce after retirement. Although it may be proper for daily necessities, there could be other expenses related to healthcare. You might also have to account for the effect of inflation. Therefore, you could set an investing budget.
You will likely earn a fixed income monthly during your retirement in India. This could be through rental earnings, interest on deposits, pension, or a combination. You could allocate a portion of this amount towards retirement investing. You may begin with as low as 10%-15% of your income and then increase it over time.
2. Avoiding risky bets or speculative trades
Sometimes, the temptation of making a high-risk trade gets too alluring. Especially if you feel that it is a calculated bet. In such cases, you may not want to invest more than 2% of your portfolio in a highly volatile stock with great promise. In such a case, your overall retirement investment portfolio wouldn’t be impacted even if the stock doesn’t perform well or its price drops massively.
3. Suitable allocation of capital across stocks
Although experienced and successful investors would recommend creating a highly concentrated portfolio to create substantial wealth. It may be risky if you haven’t selected the right stocks. Therefore, you may not wish to allocate more than 5% of your entire holding to a single stock. Thus your overall retirement portfolio will not be impacted by the underperformance of a few stocks. However, you could take concentrated bets if you rely on high-quality research to create a robust retirement investment portfolio of stocks.
4. Sticking to blue chips
Bluechip companies are credible firms that have delivered consistent profits throughout good and bad times. In addition, they have tremendous goodwill, are incredibly stable, highly renowned, and offer steady gains. In India, stocks like HUL, Asian paints, TCS, Infosys, Reliance, Pidilite, and P&G have delivered favorable returns for their investors over multiple decades, making them good bets to have in your retirement portfolio.
5. Dividend aristocrats
You wouldn’t mind earning additional passive income during your retirement in India. This is possible by investing in shares of companies that pay attractive dividends regularly. Allocating a more significant percentage towards high dividend-yielding stocks will provide you with a regular flow of income that would increase over time.
Most experts recommend that you worry very little about the overall return on your assets. Instead, you should focus more on converting your retirement assets into reliable and sustainable retirement income sources in India.
6. Index investing
Only 7 stocks of the original index basket are still featured in today’s Sensex. However, the index has consistently delivered ~15% CAGR for the last 40 years.
It implies that the bad companies in the index are automatically removed from the list of companies, and new companies are added. This allows the overall index to grow as only those companies that sustain over time remain. Therefore an investor can leverage this strategy by incurring low risk and minimal cost. In addition, you can mirror the index for your retirement portfolio without changing weight or constituents.
7. Leaving a legacy
It is important to remember that equities should be held for the long term. Therefore, you may wish to create a basket of fundamentally strong companies that will likely last for a long time and compound your wealth. Doing so will let you leave a fortune for your descendants post-retirement. Moreover, define the nominees for your Demat account. You may not want your legal heirs to deal with tedious paperwork after passing.
Finally, remember to arrange for emergency funds, health insurance, and savings in deposits for regular income before investing in equities for your retirement in India. Buy good stocks and hold despite the daily ups and downs of the markets.