When are you investing for?
Putting away money for the future is a smart thing to do, but not having it available when you need it, is not.
In America, the concept of retirement and saving for retirement gained traction in the 1930s with the introduction of social security. While there is no single retirement age, 65, when social security payments could be encashed, has been considered as that number.
in 1900, the 65+ group had only 3 million members, reflecting a nation with a young population, a mere 4 percent in a population size of 76 million.
Life expectancy crossed 65 in 1944. Therefore, till 1944, the probability of the retired adult enjoying the fruits of his savings was low, since the average person did not live beyond 65.
It crossed 70 in 1964. Even in 1964, only 5 years of post-retirement expenses were needed by most people. Creating a fund over 40 years of working life for a retirement period of 5 years did not create too many cases of distress.
However, with rising life expectancy, it is close to 80 now, the requirement has kept increasing, along with which has gone up the need to save a larger part of earnings during working years.
The same is the situation in India, with rising life expectancy. It is important to be able to project your likely life span in order that finances can be handled better. While it is not an exact science, the Actuaries Longevity Illustrator (“ALI”) helps you get an idea.
You can access it here:
https://www.longevityillustrator.org/
The investment horizon matters when one considers risk.
Equity is a real asset in that revenue and profit can be expected to go up with inflation. One can make the case that over long horizons fixed income investments are not as much lower in risk than equities than they are over shorter horizons. In emerging markets with higher and more variable inflation, the difference between fixed income and equity risk can be lower than is the case with developed markets with lower and more stable inflation rates.
At the same time, equities always delivering higher returns over long horizons is not correct.
If someone tells you that equity always pays off in the long run, have them take a look at the equity markets that ceased to exist after communist transitions in Russia and China and the equity market experience in Japan.
