“Retirement is like a long vacation in Las Vegas. The goal is to enjoy it the fullest, but not so fully that you run out of money.”
– Jonathan Clements
On retirement, one may plan to enjoy a vacation, another may think of the entrepreneur journey: in either of the cases, you need to be financially sound. Plan your retirement today!
One way to have a smooth and secure retirement is by building a strong and diverse investment portfolio that mitigates financial turbulence. It is recommended that anyone approaching retirement should allocate a percentage of their wealth in fixed-income investments. Adding bonds and debentures to your financial portfolio has a number of benefits that will help you meet your financial goals with ease. Now there is an option to invest in bonds and debentures online and earn regular fixed interest payments.
In this article, we’ve listed down some common retirement goals and how bond investment can be used to fulfill them:
1.Make Money While Preserving the Capital
In this simple buy and hold bond strategy, all you need to do is buy the bond and hold it till the maturity date. You will earn interest and grow your wealth till the date of maturity, and the best part is your principal amount will be paid back completely at the end of the bond term. The most important parameters to consider while holding bonds until maturity is the credit rating and interest rates. This way you’ll be able to ensure that you earn higher returns than bank fixed deposits while having the assurance that your money is safe and will be returned as promised.
2. A Source of Regular Income
The Bond Ladder Strategy is a method of investing in a bundle of different bonds that offer payments at varying intervals and with varying maturity dates. This way you will have a guarantee of earning payments at regular intervals. Further, you can reinvest the principal amount of a matured bond back into another bond with a maturity date that’s more than your current portfolio of bonds. This foolproof technique will keep the payments cycle ongoing for as long as you want.
3. Build a Short-term Emergency Fund
An emergency fund is an essential corpus for senior citizens and retired individuals who may need immediate cash in case of any unexpected situations. These investments should be in a liquid form even if the returns earned are not as high as you’d have preferred. There are several short-term bonds available in the market with tenures varying from 1 – 5 years, and with returns starting at 8.8% onwards.
2. Earn tax-free income
Tax on return of bond-investment is an important parameter to be considered. Tax-free bonds are issued by government bodies and institutions to fund certain government projects and activities. This is an ideal investment for individuals who have surplus money and would like to park it in a safe investment fund without having to pay tax. As the interest earned is tax-free there is no TDS applicable, and the individual can enjoy the returns without any deductions. However, one point to note regarding tax-free bonds is that they are usually long term investments and don’t provide monthly payouts.
While bonds are great instruments to have in your portfolio, it’s also crucial that retired individuals allocate adequately to other asset classes as well. A diverse financial portfolio is the best-friend of a retiree and we suggest the same to all of you. The second most important thing to consider while choosing bonds for your portfolio is the credit-rating and the overall financial performance of the bond holding company. If you get these 2 factors right, rest assured, you’re set for a relaxed and happy life of retirement.