Mumbai: The digital revolution across all sectors has been growing rapidly in recent years, driven in part by the increasing demand from millennials, people who are presently in their mid-20s until their late 30s, have started making their own decisions, especially regarding their personal finances. So much so that they are open to more Do-It-Yourself or DIY financial investment through online applications and fintech companies to avail themselves of low-cost and fast processing fees.
Tips for first-time homebuyers
The DIY trend provides more empowerment through different learning experiences, but when it comes to retirement planning, a lack of proper understanding of financial planning, identifying risk calibration, not exploring enough modern-day financial instruments, and failing to review their portfolio can impact the retirement corpus in the long run.
Here are signs that millennials need a Plan B to sort out their financial planning more efficiently to boost their retirement corpus if they plan to stop working before the age of 65:
Lack of proper goal and asset allocation
They say the first step in achieving any goal is always to get started. However, one cannot start if one is unaware of the goal they seek to achieve in the first place. The same applies to financial planning; most millennials are investing without a proper financial objective, investing only in traditional financial assets, and failing to understand their own risk-taking appetite.
How to fix it: Identifying one’s risk appetite is critical to long-term wealth creation. This can only be started by setting financial goals and breaking them into short-term and long-term, followed by the proper asset allocation based on the investor’s objectives and risk-taking calibration.
A more defined and disciplined approach are essential pillars for long-term wealth creation to boost retirement corpus. With a disciplined approach, one can easily navigate through short-term volatility to achieve long-term goals.
Sticking to traditional financial products
Fixed deposit schemes and government schemes remain the major asset classes not only for millennials but also for most retail investors. These include:
Public Provident Fund (PPF)
National Pension Scheme (NPS) for post-retirement life
National Savings Certificates (NSC)
Physical gold
While the risk is low for risk-averse investors, so is the guaranteed returns.
How to fix it: Modern financial instruments have been touted as an attractive asset class, especially to millennials, who can still take a high risk and earn higher returns by taking advantage of market volatility. These include:
Stocks
Mutual funds
Bond future markets
Gold ETFs
Investing in equity as an investment may face short-term volatility, but in the longer run, the probability of inflation-beating returns increases through products like mutual funds. On the other hand, traditional financial debt as an asset class offers consistent returns, but millennials need to compromise with single-digit returns.
After classifying goals into long-term and short-term, equity should be made an investment instrument to fulfil long-term goals, where the power of compounding plays a major role in the long run to augment the retirement corpus for early retirement.
Not reviewing their financial portfolio
A millennial investor has successfully constructed an investment portfolio with a mix of different financial assets and a high expectation to keep getting constant good returns. This is the most significant sign of a downfall of the returns unless there is a regular review of those.
How to fix it:
Millennial investors should understand that some investments are subject to constant change due to market conditions and the economic situation. Hence, it is imperative to review the financial portfolio as and when required on a weekly, fortnightly, and monthly basis. This can only be done by constantly reviewing and being aware of the financial news and intricacies of the financial product in general.
Conclusion
Millennials should start saving early in life for retirement. Saving a small portion can do wonders and be helpful in the long run. Lastly, understanding the tax implications is equally crucial to staying in line with the long-term goals.
Early retirement planning: Thinking of retiring before 65? Pause! Here are 3 key signs that millennials need to change to make better retirement plans. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
