The ideal Retirement Investment is an investment in the equity of a company that is poised for long term future growth. At every point of time, there are changes taking place in socio-economic and business environment. Businesses that embrace such changes will thrive over the next many years while businesses that fail to see such changes fall behind. This cycle goes on.
Needless to say, a portfolio that consists of change leaders will deliver the returns that you require to build a healthy retirement corpus. But given that equities are inherently risky investments, many of you may not venture into building an equity portfolio consisting of change leaders.
Is there a way in which you can build a retirement equity portfolio without risking your capital? Yes there are. Let me explain.
One good way to buy into long term growth stocks is to deploy the tax savings that you get on your tax exempted investments. For example if you invest Rs 150,000 in PPF (Read our Tutorial on PPF), you save Rs 45,000 in tax. Instead of spending this money, you can invest in equities for your retirement portfolio. Hence, even if equity prices fall, you will have lost only the tax savings that you received from your PPF investments. You core capital stays intact.
The other good way to buy into long term growth stocks is to invest interest income you receive from your investments in fixed income assets. For example if you have invested Rs 1 lakh in a fixed deposit paying you 9% per annum, you can invest the Rs 9000 in long term growth stocks. In this case, your capital stays intact and you invest what you may have spent on receipt of interest income.
Similarly if you have rental income, you can look to invest that money into long term growth stocks. If you have invested in dividend paying stocks, you can invest the dividend income into long term growth stocks.
By investing the income you receive from your capital investments into long term growth stocks, you are able to take the equity risk necessary for your retirement corpus without risking your core capital.
You will find that your long term growth portfolio would largely have grown to much higher levels than your investments in fixed income or fixed income yielding assets.
The question of identifying long term growth stocks comes into play now. You would need to identify stocks that are embracing change or even making change happen. Let us look at some of the changes happening in the world right now.
Technology is changing consumer behaviour. Technology is almost fully mobile.
Financial services industry and Auto Industry are facing a massive upheaval.
Consumption trends are changing globally. There is increasing awareness on health, wastage and pollution. Green is becoming even greener.
Disruption is the name of the game.
These are just some of the trends and there are many more like this. The idea is to make sure that your portfolio has the change leaders and game changers.