Should I invest entirely in equity for my retirement?
Dhirendra Kumar talks about the importance of fixed-income allocation in a retirement portfolio
Jun 17, 2019
Is it fine to keep a 100 per cent equity allocation for my retirement, which is 30 years away?
Principally yes but the market is a very weird place. It takes you through a roller-coaster ride. When the going is good, you feel optimistic about it but when it isn't, disappointment surrounds you. So, it is important to have some fixed-income allocations to stay prepared for all the shocks and surprises.
Even in a long-term portfolio, a 10-20 per cent of fixed income exposure helps in many ways. First, this will enable you to follow a plan and you will get a re-balancing opportunity. This means if you have an 80 per cent allocation in equity with the remaining in fixed income and the equity market tanks, then your 80 per cent will reduce to a lower percentage, say, 60 per cent. This will give you an opportunity to move your money from fixed income to equity at cheaper rates. Developing an asset allocation with shock absorbers and sticking to it is the key.
However, if you are confident enough and willing to stay invested for the entire 30 years and you don't easily get perturbed by the market movements, then a 100 per cent equity allocation is fine.