Equity participation in India has seen significant growth over the years, with the number of active investor accounts growing by over a million in 2020 alone.
Data from the Securities and Exchange Board of India (SEBI) shows that most of these new accounts are from investors in the 24-39 age bracket. Millennials’ active participation in the markets is no secret, but when it comes to seniors, it seems so. Low affinity to equity products.
Given the volatility of the stock market, it is understandable that investors approaching retirement age are reluctant to invest in stocks. However, exposure to equity instruments is a must for inflation-protected returns and long-term assets. So instead of limiting their portfolio to safe haven choices, seniors can figure out how to profit from the markets with minimal risk.
Seniors can benefit from a specific proportion of stocks in their financial portfolio in a number of ways. As you approach retirement, see how investing in the stock market can benefit you.
If you liquidate your holdings within 12 months of purchase, your gains will be classified as short-term capital gains (STCG). And if you hold your stock investments for at least 12 months prior to liquidation, the gains qualify as long-term capital gains (LTCG). While STCG is taxed at a flat rate of 15%, LTCG is taxed at 10%.
In comparison, interest income from most fixed income properties is taxable at your income tax rate, which can be as high as 30%. Therefore, equity investments may offer lower tax rates depending on the income limit that applies to you.
Additional income from dividends
After retirement, seniors have no regular source of income to rely on. Therefore, it is important to create additional and alternative sources of income to sustain yourself in retirement. Again, the stock market can help you. You can invest in dividend stocks or mutual funds for additional income.
Wealth accumulation after retirement
Although the stock market carries higher risk, it also offers the potential to generate higher returns than most other asset classes. This wealth-building potential can be beneficial to your life goals after retirement. By getting higher returns, you can embark on that extended tour you plan to do or build your home-based business without financial compromise.
Seniors who want to invest in the markets need to know that it’s not about avoiding risk entirely. Instead, it’s about managing market risk most effectively. Here are some tips to help seasoned investors navigate the markets with confidence.
Diversify your portfolio
While stock investments are volatile, it is possible to reduce the overall risk in your investment portfolio, and diversification is key to achieving this goal. The right diversification strategy protects your investment from market fluctuations. As you approach retirement age, the ideal would be to invest more in fixed income and a modest dose of equity.
An example of a diversified portfolio is as follows: 30% in fixed income; 20% in gold; 30% in pensions and 20% in stocks. Although this portfolio has equity exposure, the overall risk is negligible due to the allocation of capital across asset classes.
deposit investment opportunities
If you want to further reduce your portfolio risk without compromising on your stock investments, you can opt for the deposit investing route. In other words, you can add stock mutual funds to your portfolio. These funds collect capital from various investors and invest that money in various stocks. Equity funds can be large-cap, mid-cap, small-cap, dividend-paying, or growth-oriented funds. This approach naturally diversifies your stock investments. In addition, the professional management of mutual funds ensures access to first-class research for secure market investments.
Get help from a financial expert
A financial professional can help older investors make more informed investment decisions. So if you’re unsure about which stocks to invest in, you can always enlist the help of an expert. A professional can point you in the right direction and help you align your investments with your life goals after retirement.
The bottom line is that seniors can invest in the stock market just like any other investor. While the stock market can be risky, if you are careful and have the right investment plan, there shouldn’t be a problem. Making the markets work for you still requires the right approach as you approach your 60s.