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Retiring in a bear market. Dos and Don’ts.

If one is at the cusp of retirement, the latest market correction can be unnerving. Depending on the exposure to equities, one’s retirement portfolio could have been down by 25 per cent or more.

For youngsters, retirement is in the distant future, and there is ample time for the market to bounce back eventually and thus they need not be so bothered about the recent market falls.

However, if one is at the cusp of retirement, the latest market correction can be unnerving. Depending on the exposure to equities, one’s retirement portfolio could have been down by 25 per cent or more. 

Following things can help one chart their path in these circumstances:

1. Stay on course

It sounds clichéd, but DON’T PANIC. Stay invested until the market recovers. Otherwise, selling at this juncture will permanently dent your portfolio. ‘Selling low’ and ‘buying high’ later when the market recovers is not a wise proposition. 

Historically, the Indian stock market has recovered (at least partially) from a bear phase in a year or two. And whenever it does, the initial run-up has been sharp. Not staying invested during this critical phase could result in loss of financial opportunity.

2. Don’t shun equities

Just because you are nearing retirement, doesn’t mean you have to exit equities completely. With an increase in life expectancies, you need to ideally plan for about 25-30 years of retirement life, after the age of 60. And that is a long period to safely dabble in equities for upping your portfolio growth. 

A 2013 study by retirement experts found that portfolios that started with about 20-40 per cent in equities at retirement and gradually increased it to about 60 per cent performed better than those with fixed equity allocation or those that shed equities over time (with higher chances of beating inflation). While it sounds counter-intuitive, at least don’t shun equities after your retirement.

3. Keep cash

Ideally, a retired individual’s portfolio should be bucketed as those for catering to short, medium and long-term fund requirements. So even after retiring, you can still have a significant portion in equities that will be allowed to grow effectively, while the debt portion takes care of your income stream for the next two to three years. Those who have adopted the above portfolio strategy need not worry, as their short-term fund requirements are taken care of. 

If you have some extra cash, pad up your emergency fund. 

4. Review your financial plan

Have you taken more risk than warranted? Evaluate your real ability to manage market risk and accordingly review your asset-allocation plan. 

5. Hit the ‘conserve’ button

The outbreak of the Coronavirus pandemic can delay economic recovery and affect personal incomes. So, it’s time to get frugal by cutting down on unnecessary expenses and saving for contingencies. Also, quickly pay-off high interest-bearing debt like credit cards while refraining from taking further debt. 

A long-term investor, however, should separate emotions from the investing process. If need be, check your portfolio only to undergo some healthy hygiene, while avoiding any massive reshuffle.

6. Stop checking portfolio

Some have the habit of frequently checking their portfolio value. One week, their portfolio goes down by 8 per cent or a few lakh of rupees, they feel the pain. Another day, it recovers, they feel elated. A long-term investor, however, should separate emotions from the investing process. If need be, check your portfolio only to undergo some healthy hygiene, while avoiding any massive reshuffle.

7. Postpone your retirement

If the recent market correction has affected your short-term liquidity, consider postponing your retirement. Working for a few years more will ease your financial situation and also let you save in the process. Moreover, your existing retirement nest will get a few more years to grow. 

If working full-time is a stretch, take up part-time work that keeps you motivated and comes naturally to you. 

Takeaway

Don’t panic if your retirement portfolio has fallen sharply. You still have about 25-30 years of retirement life. Don’t shun equities, which will eventually bounce back and provide inflation-beating returns. 

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