Retirement Planning - Stocks v/s MF v/s FD

[abdriver2000]

I know a person who is going to retire in 2.5 years.
Risk appetite: Low
Market knowledge: Low
Over the past 2 decades, this person had made some very small investments in purchasing about 8-10 scrips. These small purchases are now valued at Rs. 24 lakhs. The problem is that there is just one scrip HDFC Ltd. which has a weightage of 14 lakhs in this persons portfolio.

What is the best way to re-balance this portfolio?
1. Do nothing for now since the market is off its peak. Wait for 2.5 years and liquidate this scrip slowly and convert to FDs.

2. Liquidate this scrip slowly and purchase other scrips. Which ones to purchase?

3. Liquidate this scrip slowly and start SIPs in MF. Again, which MFs?

Considering that this person is single, has no significant liabilities or assets, and this would be the nest egg, what would be the best possible investment vehicle to provide a steady stream of income?


Note: I had asked the same question in MF forum, but could not get a single response, hence posting this again for a wider audience.

 

[SavantGarde]

My views on MFs are widely known here at TJ...therefore will stick to diversification minus MFs....!!!

Not having complete details of the portfolio being discussed....here is some suggestions...

a) Reduce HDFC Ltd. to 20-25% over a 6 Month time.
b) Diversify into frontline PSU Banks Large Cap & Mid Cap
c) Some exposure to smaller Private Banks
d) Other Exposures required for Re-Balancing is FMCG, Power & Capital Goods

Besides Equity... some exposure is necessary to Different types of Bonds.

SG

I know a person who is going to retire in 2.5 years.
Risk appetite: Low
Market knowledge: Low
Over the past 2 decades, this person had made some very small investments in purchasing about 8-10 scrips. These small purchases are now valued at Rs. 24 lakhs. The problem is that there is just one scrip HDFC Ltd. which has a weightage of 14 lakhs in this persons portfolio.

What is the best way to re-balance this portfolio?
1. Do nothing for now since the market is off its peak. Wait for 2.5 years and liquidate this scrip slowly and convert to FDs.

2. Liquidate this scrip slowly and purchase other scrips. Which ones to purchase?

3. Liquidate this scrip slowly and start SIPs in MF. Again, which MFs?

Considering that this person is single, has no significant liabilities or assets, and this would be the nest egg, what would be the best possible investment vehicle to provide a steady stream of income?


Note: I had asked the same question in MF forum, but could not get a single response, hence posting this again for a wider audience.

 

[abdriver2000]

Thank you for your response. Can you please provide further breakups for items b,c,d and bonds.

Just a rough plan would be fine. Also, we have a timeframe of 2.5 years, so we can look at small to medium term only. Since the investor here does not have a risk appetite, it is quite likely that the focus would be on fixed income at the end of 2.5yrs.

 

[sanjosedesi]

Since the investor here does not have a risk appetite, it is quite likely that the focus would be on fixed income at the end of 2.5yrs.

If someone is so close to retirement, should he even take the risk? After 2.5 years, the 24 might grow to 48, or it might become 12. If there were 10+ years to retirement, it will be a different matter. Do not risk more than needed.

At the same time, I acknowledge that the possibility of stock market going up in the next 2.5 years is high.

On point c) smaller private banks ... these will be risky by definition. You will need to research solidly to avoid surprises. Keep this as a smaller chunk. Maybe not more than 1 L out of the 14 L should be moved here.

 

[linkon7]

normally the thumb rule is

percentage of investment in stocks = (average age expectancy) - (current age)

Assuming the person is 55 yr old and avg life expectancy is 65, then he should have 90% of his capital in bank FD and balance 10% in stocks.

With just 2.5 years to retirement, what he needs is a steady low risk source of income.