As a country, India is witnessing a rapidly ageing population and changing economic dynamics. The need for financial security is also growing amongst all age groups, increasing the popularity of investments in different financial tools.
Retirement planning is crucial to safeguarding the future, and a pension plan is a top choice in the market.
With the ease of choosing pension plans online using a pension calculator, the demand in the market is rising significantly. But is a pension plan enough for retirement?
Why is there a need to diversify retirement investments? Let us find out.
What Does Diversifying Retirement Investments Mean?
Investments play a vital role in securing your financial future and achieving your goals post-retirement. All your investments come together to create your financial portfolio, allowing you to assess your wealth capacity and fulfil requirements as needed.
The need for diversification when it comes to retirement planning is necessary for multiple reasons. The meaning of diversifying retirement investments is simple. It refers to distributing your savings among a list of different assets and investment options, which help you maintain ample financial security for retirement.
It offers better stability for the second innings, giving you enough financial freedom to lead a stress-free life. To understand this in detail, let us discuss the top benefits of diversifying retirement investment below.
Top Benefits of Diversifying Retirement Investments
Better Risk Management
The top benefit of diversifying retirement investments is the mitigation of risks involved with investing. When you diversify your investments into multiple categories like bonds, stocks, policies, real estate, etc., you reduce the risk of having a single investment.
In simple words, given that you have invested in multiple assets, the performance of one will not negatively impact the overall return value of your portfolio.
Tax Benefits
To encourage investments, India offers multiple tax benefits on different retirement-related investments. Some examples include Employees Provident Fund, National Pension System, Public Provident Fund, Fixed Deposits, etc.
Therefore, diversifying your retirement portfolio by investing in multiple options with tax benefits reduces the tax liability, resulting in increased savings.
Growth Opportunity
Retirement planning is part of the long-term goals and is necessary for ensuring financial safety for a better future. When you diversify your investments, you can invest in different asset categories, each giving different return values for different tenures.
For example, PPF allows you to benefit from increasing interest rates on the principal amount, increasing the earnings after maturity. This positively impacts your portfolio value and increases growth opportunities.
Improved Liquidity
Different investment opportunities have different sets of rules. When you diversify your portfolio for retirement planning, you can invest in various illiquid and liquid assets.
This is beneficial as it ensures you have cash availability whenever required during your retirement, without having to sell your valuable assets in time of need or emergency.
Financial Legacy
Another benefit of diversifying your investment portfolio is having enough to pass on your financial legacy to family members. You can leave behind your loved ones with financial security, which can help them achieve financial goals and clear out debts and liabilities without much hassle.
Wrapping Up
Diversifying your retirement investment is an effective strategy that allows you to secure your future correctly. Diversification helps you with risk evaluation and assessment, increases the scope of returns, and allows flexibility for better portfolio management.
The key is to select the right mix of different assets and continuously reassess and review the multiple investments to balance the risk and return ratio. With an investment portfolio with diversified assets, you are sure to benefit from a financially stable and comfortable retirement life.
