Stocks are thought to be only for the young and daring due to their unpredictable nature. It is recommended that the elderly avoid investing in this risky asset. To dispel a common misconception, stocks are essential for all investors, young and old, because they are the only asset that can outperform inflation over long periods of time.
Early retirement is a journey which requires a lot of commitments and discipline in life. For many adults in their 20s, retiring early in their career is a dream. One has to make a retirement plan by managing their expenses current and future.
The stock market is the best investment instrument, which can beat inflation with a good margin, and has a history of making people wealthy, who are consistent in their investments. If we look at the stock market benchmark Nifty50, it has given more than 14% CAGR in the last 20 years.
There are multiple ways to invest in the share market and get the maximum yield, like direct equity purchase, ETFs and Mutual Funds.
The longer you hold on to quality investments, the more the returns compound and increase wealth. For most investors, equity works well only over the long term. Saving for retirement is another long-term goal. No other instrument is better suited to meeting long-term growth needs than equity. For example, an equity fund can give returns of around 13-15% on an annualized basis.
ETFs, or exchange-traded funds, can be traded similarly to stocks and provide greater flexibility in moving money. That trading carries more risk, but it can be beneficial to an informed investor. Because of their unique structure, the funds are also tax-efficient. In these investment, fund manager do not play any big role in returns, so these product are also very cost effective and less risky as compared to direct investment.
Mutual funds have become a popular asset class for accumulating funds for a variety of financial goals. Mutual funds are among the most adaptable financial instruments. They allow you to increase your investment as your income rises and withdraw funds as needed. These are managed by professionals. So, they generally give better return from direct investment and ETFs, but cost is comparatively very high.
A smart choice matters because if you want to live a peaceful retired lfe, you need not only the right amount of time but also the right kind of investments. Due to limited time and a low risk tolerance, a person nearing retirement should invest in companies that consistently grow and have quality management.
(By Ravi Singhal, CEO, GCL)
Disclaimer: This is the author’s personal opinion. Readers are advised to consult their financial planner before making any investment.