Tips For Maximising Your Retirement Funds As Covid-19 Threatens Corpus

We are going through a phase of the catastrophe caused by the current COVID-19 crisis, and while the human cost is much greater, there is also an economic dimension that is affecting everyone. Several people have lost their jobs, companies are on the verge of collapse, and the health care systems of even the best economies are stretched beyond their limits. Financial Markets went through some of their weakest days since the 2008 Financial crisis, which was immediately followed by people getting anxious about their portfolios, especially with their plans of retirement.

A large number of people have been nervous around what will happen to the funds that they have or plan to pool for retirement if this Covid-19 crisis worsens further across the globe. In the month of March, it was reported that the unprecedented economic uncertainty triggered by coronavirus had prompted many investors to think about taking the irreversible risk of selling their future retirement stability to ease today's liquidity crunch. Even though this is a grim phase for the markets, it is believed that the investors should not make any hasty decisions in selling their retirement corpuses to trade off with the current liquidity crunch, as experts believe that once this phase is over the markets will be back to normal, and especially the valuable funds will start producing similar yields as they did previously. Experts also suggest following the basic principles of retirement planning, even during this period of crisis, as that is the only way of maximising your retirement corpus.

Here are a few tips that can help you shrug off some of the losses during the pandemic and help you plan better for your retirement:

• Invest in ETFs - An Exchange Traded Fund is a type of investment instrument which involves a collection of securities such as stocks and often tracks an underlying index. These can invest in several sectors and can use various strategies. ETF’s behave a lot similar to the mutual funds though, they are registered with exchange and are traded during the course of the day just like a regular stock. ETFs offer a variety of advantages such as access to stocks across various industries, low expense ratios, risk management through diversification and focus on target industries. While the overall indices performance during this period has not been great, the risk factor of ETF’s, in comparison to individual stocks has been much lower and the volatility of the market has not affected the ETFs as much as it has to the individual stocks. And hence, even though there are downside risks involved towards investing in ETFs for retirement planning, broader long term ETF performance suggests that it could be a decent investment for maximising the retirement portfolio during these tough times.
• Dividend Stocks - Dividend is a pay-out made by some companies to their shareholders that is a part of their earnings or profits. Regardless of what happens to the stock price, dividends give stockholders a steady return. In order to build long-term wealth, investment in a dividend-paying stock is a great option for investors. However, dividends are not guaranteed, especially as in the current period, a lot of the companies are either cancelling or deferring their dividends to preserve cash. The companies can also stop paying dividends when they want to. So, the investors should look to reinvest their dividends from time to time rather than spending them when they receive it as it forms a decent source of alternative income, and in the long term, this can. The following is a list of five consistently dividend-paying stocks on the London Stock Exchange and their current dividend yields.

(Source: Thomson Reuters)

(*Note – Dividend Yields are constantly changing and are volatile due to their dependency on changes in the share price. The current market scenario is being driven by the investor’s confidence in relation to the coronavirus crisis; hence this is just an overview of the past performance of these companies and not any recommendations)

• Retirement Income Funds - Retirement income funds are a type of focused mutual fund. They distribute investors’ money automatically through a diverse mix of stocks and bonds, also by holding a number of different mutual funds. The funds are operated with the aim of generating monthly income which is attributed to investors. Such funds are built to offer an all-in-one program intended to accomplish a common goal for purpose of retirement.
• Start Investing Early - For someone who is yet to start investing, and is now nervous about the retirement due to the Covid-19 crisis and its impact on the economy, it is a good time to start investing with a bird’s eye view towards the retirement. It is understandable how one wouldn’t trust the financial markets during such phase, but it is also true that it is just a part of different phases that the market is going through, and things will improve, as they always seem to do after a bad phase. Starting early, is one of the most important things, as you will be able to earn a higher compounded return on your current investment, including a longer period of investment, which will generate additional returns for you. This means that the longer you have your money invested, the larger corpus you will have following your retirement, making your period post-retirement extremely secure. Another important factor is that when one starts investing early, their risk appetite is also greater at the time, meaning they will have the potential to get higher returns on their investment, as compared to somebody who starts late, who wouldn’t have a similar risk appetite on their investments.
• Closed-Ended Funds with regular income - Many of the closed-end funds are designed to generate income monthly or quarterly basis. Such income can come from interest, dividends, or a principal return, in certain cases. Each fund has a different purpose; at one place there will be some who will focus on a dividend capturing strategy, while some will focus on own shares, some own bonds etc. It is advised that the investors should do their own research before investing in any product, especially the ones with downside risks. Many closed-ended funds are able to pay a higher return because they use leverage, i.e. borrowing against the fund's securities to buy more income-generating securities. The additional leverage also tends to reflect the additional risk for the investor. Expect all closed-end funds to be very volatile in terms of their principal interest.
• Real Estate Investment Trust – A real estate investment is generally expensive, and hence, there are Real Estate Investment Trusts (REITs), that allow investors to invest exactly like a stock, and gives them a piece of the total real estate investments made by the company. REITs are generally risky as the underlying asset in this investment is property, which is extremely volatile and depends on market cycles, but also have a knack for producing high returns, if invested for a long period of time, hence making this a comparatively lucrative asset for the purpose of retirement planning.

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