Ten Financial Mistakes you regret at retirement!- Economic Times

Every time Amit sehgal  reviews his portfolio, he regrets the investments made on his father’s advice. “The life insurance plans he recommended will give barely 6% returns,” says the Raipur-based MNC manager. Acharya bought his first policy in 2000, when he was 29, and added four more plans as his income grew in the following years. He pours in Rs 1.5 lakh into the five lowyield policies every year even as more lucrative investment opportunities pass him by. “It was a mistake that cannot be undone. I have to pay the premium for the full term,” he says.

In Delhi, 43-year-old Ashok Vishwakarma is ruing his decision to join a scheme that promised a neat sum for responding to surveys. Vishwakarma joined SpeakAsia in February 2011, just two months before the scam was busted. The Rs 33,000 he poured into the survey scheme is now as good as gone. “Had I not been greedy and put the money in a fixed deposit, it would have grown to over Rs 50,000 by now,” he says.

Investment choices are also influenced by personal experiences. Mumbai-based Prakriti Ojha has stayed away from market-linked products after she incurred losses in a missold Ulip. Now she invests only in the PPF and traditional insurancepolicies. However, she may regret her decision to avoid equities in later years.

This week’s cover story looks at 10 such investing mistakes that young people may regret in later years. Investing in insurance, choosing the wrong investment vehicle or putting money in dubious schemes are only three of these 10 mistakes. Waiting too long to invest, dipping into retirement savings and splurging on needless items are other common mistakes that young people make. In the following pages, we tell you how not to make mistakes that you will regret 15-20 years from now.

Delay investing till income is higher
For young earners, spending is more important than saving. A study of 2,000 professionals by Hyderabad-based financial planning firm, Arthayantra, found that more than 90% don’t start planning for retirement in the first five years of their careers. Even by the 10th year, less than 20% would have a retirement plan in place. The consequences of this delay are mind boggling. What one saves in the first few years of starting a career burgeons into a massive amount over the next 25-30 years even though the individual saves more in the later years as his income grows.

If an investor starts an SIP of Rs 5,000 in an equity fund that gives 12% returns, he will accumulate Rs 1.77 crore in 30 years. But if he waits till 28 to start investing, his corpus will be smaller by Rs 56 lakh. Even if he enhances his savings by 10% every year, what he puts away in the first 10 years will account for almost 24% of the total retirement corpus. The longer the delay, the smaller is the corpus.

Many young earners don’t start investing because their income is low. This is a fallacy. For a young investor, the smallness of the investment is more than made up by the long time available for the money to grow. The magic of compounding ensures that even a small sum grows into a gargantuan amount over the long term. The investment can be scaled up as the income grows in the coming years.



Taking too little risk with investments
Though there is irrefutable empirical evidence that equities can give high returns in the long term, small investors continue to rely heavily on fixed income investments. Equities account for a very small proportion of the total household savings.

Surprisingly, even young investors who are in a position to invest in stocks, opt for the safety of bank deposits and small savings schemes. This aversion for equities could  ..


Prakriti Ojha , 31 years, Mumbai

Income: Rs 1.1 lakh a month

Equity exposure: Nil

She is young, earns well and has a steady job. Yet she invests primarily in PPF and bank deposits, something she may regret later in life.
Not following an asset allocation
Not many investors believe in rebalancing. Less than 10% respondents to an online survey said they rebalanced their portfolios regularly. Yet, it is the mantra that ensures high returns at low risk.

The rebalancing decision is not easy because it takes a contrarian call. Few investors would have reduced their equity exposure when the markets were making new highs between 2004 and 2007. If they had, their portfolios would not have bled so much in 2008. Similarly, how many would have put more in equities after the bloodbath? Those who did, made good gains when the markets bounced back in 2009. If you rebalance regularly, you will not have any regrets.



Source: Economic times




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