Ravi, the hard working professional, is planning ahead for his retirement. He has gained sufficient knowledge on Retirement Investments by following Investors are Idiots.com. Ravi now understands that time to retirement should not determine retirement investments as market, economic and business cycles do not work on the principle of time to retirement. Conditions could change considerably over the next ten, fifteen or twenty years leaving retirement portfolios that are not geared for change bleeding.
Ravi on his own and by learning from Investors are Idiots.com is confident of equity markets doing well over the next few years. Ravi is compulsorily invested in PF as his salary gets deducted for PF investments. Fixed income retirement investment for Ravi is through the compulsory route though he does not trust a fifteen year nominal return product where a government can change three times, which could lead to haphazard inflation policies.
What should go into Ravi’s equity portfolio? Should Ravi buy into stocks that are expected to do well over the next few years or stocks that are expected to do well over the ten to fifteen years. Ideally, since Ravi is planning for retirement in ten to fifteen years, his equity portfolio should have stocks for the future i.e. stocks that are not affected by market cycles. For example in the US, a 401 K investor owning bank stocks before the market crash of 2008 would have lost heavily while an investor owning stocks for the future such as Apple and Google would have easily ridden the market crash and seen strong returns on the retirement portfolio.
However given that markets have ups and downs, sometime prolonged, Ravi can look at a mix of stocks that could have a core of stocks for the future and periphery of stocks that would perform well in a market cycle.
How does Ravi build an equity portfolio that carries both forward looking stocks and stocks for the present? For the forward looking stocks, Ravi has to have a view of how the environment will look in the future. Technology is driving change across consumers and businesses and clearly Ravi’s core portfolio should have change leaders or stocks that adapt and grow in a changing environment.
Other changes include environment changes, health and longevity, economic imbalances etc. Stocks geared for such changes should be core holdings in Ravi’s retirement equity portfolio.
Ravi has a clear view on the market and what stocks will do well in this up cycle. His periphery portfolio should consist of stocks that Ravi’s believes would do well in the next few years, not necessarily in the longer term.
Ravi decided to follow the model twelve stock portfolio of Investors are Idiots.com that carries stocks that are riding a current market wave as well as stocks that are positioned for long term outperformance.
