Published Article Details

Why you should not invest in equity, real estate when goal is near

Posted by: Arti Bhargava on Feb 05, 2018, 06.30 AM IST

Shyamali is a 45-year old marketing professional who wants to start her own business by 50. She has been diligently saving to create a corpus to take care of her finances while her business stabilises. However, she is falling short of her target. To make up for it, she is thinking of increasing her allocation in equity and real estate, which have given her good returns in the past. Is this the right option for her?

Increasing allocation to equity and other growth assets may expose the portfolio to more risk at a stage when Shyamali would be looking at booking gradual profits and keeping funds ready for use. As she nears her goal, does she have an appetite and the horizon to navigate a down cycle in equity and real estate markets? It is not her age but the holding period available for the investment that is relevant in making an appropriate investment choice. Hence, the additional return from investment in equity and real estate for the remaining five years may not significantly change the final corpus value.

Shyamali may have to consider postponing her entrepreneurial plans by a few years to give her investments the time to grow. The advantage is two-fold. One, the additional time will give her investments the benefit of compounding. Two, the pressure on her corpus will reduce since her salary will take care of her expenses. Shyamali should also consider allocating more to this goal than she originally planned to, since she might be able to afford a larger saving surplus on a monthly basis.

One or two years down the line, as she approaches the drawdown period, she should move her corpus to a less risky investment, so that it doesn't lose value. It is much wiser to delay pursuing her dream and increasing her investment horizon and allocation, rather than making the wrong investment choice.

(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)
This article appeared in Economic Times dated Feb 05, 2018, 06.30 AM IST

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