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2018: A harbinger of hope?

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Economist Priya Desai suggests ways to stay financially stable in 2018

With the advent of the New Year, it’s only natural for everybody to let go of everything unpleasant. Most silvers feel focusing on the positives will help them welcome the New Year with open arms. And while the adage goes ‘health is wealth’, the truth is that along with physical health, we also need financial health to sustain us in these increasingly inflation-ridden, money-centric times. Most silvers weave their hopes, aspirations and plans for the near future not only on the basis of how healthy their heart is, but how deep their pockets are.

Those who have just moved into the silver phase of their life may still have their hands full with job responsibilities. Silvers in the age group of 60 to 70 are a more sombre lot, experiencing the realities of advanced age. And those that have crossed the 75-to-80-year threshold are an anxious lot that are unsure about what the future holds. That said, each of these groups embraces the New Year with the hope of physical health and financial stability.

Surprises galore

India in 2018 can unravel surprises in a range of avenues. The year 2017 was wracked by shocks to the economy in the form of demonetisation and GST implementation, affecting the lives of Indians across all strata. But those may well have been the tremors before the actual earthquake in the form of new economic reforms slated to be released in the forthcoming year.

The question: Will these reforms help improve money matters for silvers? Are there any avenues, methods and instruments available to them that will absorb the shocks, protect their monetary kitty and add to their income pool?

Take stock

A search for changes involves taking stock of the sources of total income flows that vary from person to person. Some silvers enjoy a handsome pension during their lifetime and have the liberty to invest the surplus in lucrative instruments with varying risk profiles. Others may not be so fortunate and have to depend on fixed income-earning assets such as fixed deposits.

Even a cursory look at asset allocation would show that incomes from these have declined by almost 33 per cent as fixed deposit rates have been brutally curtailed in 2017. With each passing year, every matured fixed deposit, if reinvested, earns declining interest rates. The Government has now offered LIC’s Varishtha Bima Yojana, which carries an 8 per cent annual interest rate. However, it has a fixed tenure of 10 years, with a cap of ₹ 750,000, which puts investors in a bind.

Indeed, monetary changes in the economy have had an adverse impact on the earnings of most silvers. The only way forward is to research and find solutions that will help safeguard the existing amount and add to the income flow.

Growth-oriented avenues

Investment in FDs as an assured source of fixed income is one of the many avenues. As Alexander Graham Bell rightly said, “When one door closes, another door opens.” This is true of a variety of financial instruments available to investors. Over the past year, the stock market experienced a boom with the Sensex crossing 33,000 and Nifty overstepping the 10,000 mark; stock-market pundits see bulls running the marathon.

While there has been an influx of foreign investors in the market, there has also been a rise in the number of domestic ones. Investors are learning the ropes as stock-market gains can easily exceed the income they get from fixed income deposits; in short, equities is the latest buzzword!

Value addition

Though investment in equities is an attractive proposition, it is not without risks. It exposes you to the vagaries of stock-market trends, which can be extremely unpredictable and sometimes volatile as well.

But a reasonably long-term investment in stocks with sound financial fundamentals can reward investors with good dividends and growth in value. While the dividends are tax-free, long-term (over one year) capital gains are tax-free as well. Tax considerations and value-addition are aspects that add to the charm of investing in equities.

What typically keeps a large majority of silvers away from the stock market is its volatility and the attendant risk that the stocks they buy may lose value—which may cause them to lose their shirts too. Silvers willing to balance the risk-reward ratio should consider mutual funds that offer a varied basket of options and obviate the direct risk involved in indulging in the stock market.

Mutual funds also invest in stock-market instruments and carry a similar risk. But long-term investment in well-chosen mutual funds offers stable dividends and grows in value each year. UTI’s Mastershare, a mutual fund, is the darling of many silvers as it has consistently rewarded them with good dividends year after year. Mutual funds are liquid and offer a vast spectrum of risk-reward combinations suitable for individual investor profile and risk appetite. They, too, provide benefits such as tax-free dividends and long-term capital gains.

Reset asset allocation

In a rapidly evolving financial space, silvers may find it beneficial to reset their asset allocation, which determines their income flow. As different assets undergo changes in their earning potential, the need of the hour is for silvers to restructure their portfolio and shift assets to instruments with a high-earning potential. They will have to clear the cobwebs off their assets and explore the possibilities of repositioning annuities, equities, mutual fund, bonds, and holdings of gold and silver as well as real estate.

Reform your mindset

The golden rule is to accept change as a permanent factor and be vigilant to derive maximum benefits from your accumulated assets. Very few silvers in India are likely to find gainful employment after retirement. It means they can’t work and bulk up their kitty.

In America, the number of seniors working out of sheer necessity has more than doubled to 9 million from 4 million in 2000. In India, wealth creation will have to occur through the present stock of wealth held by seniors as the chances of acquiring new stock is almost non-existent.

Digitally agile

Little wonder then, that it has become imperative to get creative and think out of the box. Demands from the digital world do their bit to stress silvers even further. While most refuse to bow down to these demands, this has proven to be nothing but a futile attempt. Those who have been proactive have found that many digital processes have distinct benefits.

You can start out small by paying your bills and advance tax through netbanking and save money and time on seeing a consultant. Financial and digital literacy is no more a choice but a necessity. If silvers are to take advantage of the changing landscape of opportunities, they will have to be more market-savvy in order to guard their assets more effectively.

Further, they will need to be on the learning curve for current financial developments and be open to information and learning available on various websites. No investor can afford to remain clueless or indifferent to their asset allocation.

Hopeful is helpful

It is said that expenditures are like galloping horses, difficult to rein in. This is especially true for silvers. Declining incomes and constantly rising prices of essentials and medicines have rendered them unsuccessful in maintaining their standard of living. Increasing mediclaim premiums and reduced claim payments have also added to the burden. Perhaps the only way to remain unaffected is to stay fit and healthy.

A New Year brings in its wake new challenges as well as islands of opportunity. It is important that silvers gear up to face these and derive maximum benefits. So revisit your asset allocation, improve financial literacy, embrace digitisation and add a punch of physical well-being while welcoming 2018.

The author is an economist based in Mumbai

Featured in Harmony — Celebrate Age Magazine
January 2018