The government’s so-called small savings instruments like the senior citizen savings scheme, variety of postal savings schemes, public provident funds are where senior citizens prefer to invest their
The government’s so-called small savings instruments like the senior citizen savings scheme, variety of postal savings schemes, public provident funds are where senior citizens prefer to invest their savings. Being retired and hoping to spend a peaceful life with their savings or pensions, they prefer no-risk or low-risk options when it comes to investment so that the interest from it becomes their income. But the nominal value (the return adjusted inflation) of the return which he/she gets from these fixed income products is very less and most of them are unaware of this.
It is commonly found that these days senior citizens invest their retirement surplus in governments fixed income instruments or in hard assets like gold. And gold is a non-productive asset which gives no interest or dividend. So ultra risk-averse investors who prefer only fixed income instruments and hard assets have to diversify their portfolio; they should think about giving some portion to equities which provide reasonable dividends and long-term returns.
By any standards, equities of quality businesses have outperformed all other assets. While looking at the market data, one might see those periods where stock market or indices have not performed well, but individual businesses that are productive with upright management have always been outperformed and have given enormous returns.
The lack of predictability and volatility makes the elderly always ultra risk-averse to deal with equities. Moreover, the kind of advises that they get from most of the financial advisors force them to invest in fixed income instruments where inflation vanishes the real value of their investments.
Going forward, senior citizens should give room for equities of quality companies in their portfolios to receive a decent return which beats inflation in the long run. Moreover, the government’s initiatives in reducing interest rates in various small savings investment options reduce a significant amount of return received from it.
(The writer is Analyst- Fund Management with Moat Multi Family Office)
