Different investment options are suitable for investors with different tastes. For instance, if you are an extremely risk-averse investor, the best option for you might be to stay away from options such as equities. On the other hand, if you prefer aggressive routes to reach your goals faster and are not against some risk, equities should work the best for you.
But what if you are a retired individual whose income might have stopped, and you want to dabble with equities with your retirement fund? Then you might need to take things a little different. Let us see how.
What are equity mutual funds?
Equity mutual funds are those that primarily invest in equities. Equities are shares of companies that represent ownership in them.
Equity investments are the basis of any market-linked investment. Hence, it is the most liquid as well. Moreover, since their prices could go up and down within a matter of seconds, they are considered to have the most growth potential, and at the same time, they have the highest risk associated with investing in them as well.
Equity mutual funds share similar characteristics. They are known to give the highest returns, and at the same time, they come with higher investment risk.
As we have discussed above, choosing an investment option depends on many factors, including your risk appetite. But when you have retired, the scenario changes. Now is the time when most people would focus on capital preservation than appreciation. But that doesn’t mean you can’t invest in equity mutual funds anymore. Although keeping a few things in mind can help you maximise your returns while, more importantly, reducing the risk. Below are some tips to follow if you are retired and looking to invest in equity mutual funds.
Look at your income
Your current income is a critical factor in making a decision here. For most people, retirement means a stoppage of income except for some pensions that are not significant enough. But if you have a stable and significant income flow even after retirement, you could easily consider investing in equity funds. Since the income will continue to flow, petite money losses might not affect your bank all that much.
But if your income has stopped post-retirement, you need to be extremely careful in deciding to invest in equities. This is because if you are investing using the money in your retirement fund, it can prove to be extremely risky. One wrong move or a bearish run can prove to be catastrophic here. Hence, investing your retirement money in equities is generally not advised. But if you do, extreme caution is warranted.
Look for low-risk options
As discussed above, risk could be a factor that could make equity fund investments unsuitable to retired individuals. Here, just a single wrong move or unpredictable market situation is enough to cost you significantly. But if you are still looking for equity investment options because it best suits your goals, you could consider choosing a low-risk investment option. For example, a large-cap equity fund. They primarily invest in stocks of large-cap companies that have a proven track record. This means overall bears and bulls have limited effect on them, and their price tends to grow steadily over time.
The consensus is that retired individuals should stay away from investing in equities to protect their capital. But if you are confident in your ability to invest rightly in stock markets, nothing can stop you from that. But make sure you consult with an investment advisor for better results.