Is your Investment Portfolio aligned to your Retirement needs?

Once you are past age 50 (or even a little bit earlier), you start thinking about how your life after retirement will be. One of the most important questions that you need to answer is regarding your finances. Do I have adequate money for retirement? Is my current investment portfolio positioned correctly? How will inflation affect me? Even before you start seeking answers to these questions, you need to be aware of the investment biases that you have and how they reflect in your current portfolio. In this article, I will describe these biases and share with you possible ways to overcome them.

People in the age group of 50-60 are at a very unique stage in their Life. If you have managed your money well, you have adequate resources to meet your big financial commitments. Now that your commitments are out of your way, you are keen to realign your portfolio in a manner that helps you through your retirement years.

Are you aware of your investment biases? How do these affect your investment decisions?

Your current portfolio will be reflecting your own investment biases. If you want to understand the source of these biases, watch Karl Eggerss of Eggerss Capital Management discuss investment biases here: Watch video here.

So what’s the key take away from the video? We all have investment biases which prevent us from doing what’s most appropriate for our portfolio! These biases prevent us from adapting our portfolios to our needs. It is therefore important that we take cognisance of the same and address them.

Equity, Real Estate and the Wealth Manager

Since equity and real estate have been the biggest investment opportunities of the last two decades, your portfolio is likely to be dominated by either of these or both, and if you have been a very conservative investor, debt and real estate will form a bulk of your assets.

Interestingly, the financial distribution landscape has also changed over the last two decades. The Relationship Manager of your bank or Wealth Management firm is now an important part of your investment decision making process. I would not be surprised if you are managing your money with more than one wealth manager. In the initial stages of your relationship with them, they offered you equity funds and now they ask for investments in PMS, AIF or Real Estate. You do consider their proposals seriously as many of these investments have done well in sync with the historical performance of the equity or real estate markets.

So, where is the problem?

The real issue is that despite approaching retirement, you continue to take risks. If your portfolio is dominated by equity or real estate (excluding the house you live in), you should be really concerned. Since you have the money and you believe it is far in excess, you continue to explore investments with high return potential ( and risk) it is more likely that you could make a big mistake which could significantly erode your wealth.

Though India remains a great investment opportunity, equities will always remain a volatile asset class and if things do not work out, you do not have recourse to generating this wealth once again in your life time. In the economic downturn of 2008 (popularly called the Global Financial Crisis), the BSE Sensex dropped 60% in a span of a year, but luckily recovered within the span of another year. What if it stayed low for a much longer period? What if it took 4 to 5 years to recover? The market memories are short. The BSE Sensex was at approx. 3400 in Jan 1994 and after nine long years it was still hovering around 3300 in Jan 2003. Can your portfolio handle these extreme events? Can you rely on your portfolio to generate regular income during your retired life?

You should also be concerned if all your investments are only in fixed income products. Even at inflation rates of only 4% per annum ( India has historically had a much higher inflation rate), your money would lose Two thirds of its value over a 30 year period. You may believe that this won’t hurt you much, but do you want to be struggling to meet your regular expenses at the fag end of your life?

What’s the solution?

The answer to the above questions is rather easy. At this stage of your life, the endeavour should be to have an appropriate risk exposure. All you have to do is establish the ideal asset allocation between Debt and Equity ( Equity includes Mutual Funds, PMS, Direct Equity), based on what you are seeking from your overall portfolio and just stick to it. If you are seeking Wealth Preservation, you should have higher allocation towards debt, and if you are seeking growth, you should have a higher allocation towards equity. A good financial advisor would first discuss the appropriate asset allocation and then discuss the investment opportunities that you should be considering.

How does it work in practice?

Once you have established your ideal asset allocation, you can align your portfolio in sync with it. It is also very easy now to say either yes or no to all the investment ideas coming your way. Let’s say tomorrow someone comes up with an interesting equity strategy, all you have to do is see how this fits in with your overall portfolio and what it does to your asset allocation. Suppose your current portfolio has an asset allocation of 70:30 (Debt: Equity), and this is the same as your target asset allocation, you have 2 options. Either you don’t invest in this new equity strategy, or if you really like it, you liquidate some equity investments to accommodate the new product.

Closer to retirement, monitoring risk is as important as chasing returns and asset allocation is one of the most effective ways of ensuring that you are never exposed to too much risk. As many of us jokingly say in the financial world, why would you take risks that take away the HNI (High Net-worth Individual) title and make you a MNI (Medium Net-Worth Individual) or even worse, a NNI (No Net-Worth Individual). Be aware of your biases, and align your portfolios to your needs and not your greed. What has worked for you in the past may not be very appropriate for your future.


Equities and Real Estate have been big wealth generators for the generation that is close to retirement. It is natural for many of us to have our current portfolio significantly skewed towards equity and real estate. The financial advisory world has evolved too and you are being chased by several wealth advisors who continue to promote more equity, PMS, AIF products and real estate. Since this strategy has worked for you, you continue to explore and invest in these products.  In my view, at this stage of your career, developing an asset allocation plan with bias towards fixed income would be more appropriate than chasing the best investment idea in town.

So, what are your investment biases? Are you aware of them? Do you an asset allocation plan in place to help you overcome them?

14 thoughts on “Is your Investment Portfolio aligned to your Retirement needs?

  1. Vivek Verma

    Sir ..Its really interesting observation that we have our own biases which impacts our investment decisions and one must be aware about these biases and align the portfolio as per the overall objectives


  2. Ajit Mittal

    This was a real nice article which is a must read and thought provoking. Shared it with all my colleagues. Please keep sharing and on FB too where I read it first.

    Liked by 1 person

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