A retiree must grasp the merits of his “next best plan”
A few years ago I was in Lisbon, the vibrant capital of Portugal, a country that had close colonial ties with India, commencing with the arrival of Vasco da Gama in Calicut several centuries ago. While visiting a memorial constructed in memory of his famous journey across hostile seas, and closely listening to a local guide (a mix of fact and lore, all in perfect English), I became quite aware of the sailor-explorer’s extraordinary feats, and, importantly, some of his beliefs and habits.
The visit remained etched in my mind long after I came home, and I started reading about da Gama and his many exploits. The Portuguese pioneer displayed an undaunted spirit and demonstrated astute leadership, all of which helped him acquire an elevated position in naval history.
Well, be that as it may, what lessons do da Gama’s exploits hold for the ordinary retiree? A pertinent question, I say, considering that the average column on retirement usually deals with such mundane matters as financial planning, asset allocation, and de-risking portfolios.
Let’s go a step beyond the mundane today and pick up a few elements from the explorer’s tales. In particular, I refer to two of what I think are his special traits. In simple words, these are:
Always put a premium on risk
Always have Plan B
A premium on risk
The retiree of my dreams, for all the confidence that he may display, always considers the riskfactors – these comprise the most constant, inevitable, and essential elements of his strategy. At whatever stage of planning he is in, risks may act as the real spoilsport, destroying even the most finely-devised tactics. So your equity portfolio may plummet when the stock market declines sharply, your debt portfolio may crumble when interest rates turn abruptly, and the valuation of your real estate may well shrink beyond imagination.
Now, while your net worth takes a major hit, there is no reason why your costs can also be pared. In other words, your medical bill cannot be brought down by, say, 25 per cent. Expenses incurred on food and fuel will not decline suddenly as well.
And while you will indeed strive hard to reduce your entertainment expenses, the occasional trip to the neighbourhood restaurant will still strain your credit card. So much for cost-cutting, you will think as you toss and turn on your bed every night!
We thus arrive at the sub-head we started with: put a premium on risk. To do that efficiently, you will have to take the usual steps – say partially close to cash, create a pool of liquid assets, make sure you are covered for an unforeseen emergency or two.
Of course, risk management has a completely different aspect – insurance. Smart retiree spares considerable time – and allocates sufficient resources to – his insurance plan. A decent pension strategy can be built based on appropriate pension products. Further, it is critical to possess medical insurance. That is another subject worth discussing at length.
Plan B
There is no substitute for the proverbial Plan B – something that is a lot more than just an escape route, or a mere alternative strategy. A retiree must grasp the merits of his “next best plan”.
If a formidable portion of his portfolio suffers consistently, the retiree must know what to do. Will he sell and liquidate the bad (read: non-performing) assets? Will he keep the proceeds tucked away in a little corner and revisit the market when conditions turn better? Is there scope for him to switch to a steady, stable alternative when caught unawares?
These questions must be addressed purposefully. There has to be a reason for everything. A switch or an exit in whatever form may invite taxes. Maybe even loads and sundry other charges. Perhaps there are penalties attached. These issues must be dealt with great diligence.
Whatever one does, the need for adhering to one’s risk-return matrix is supreme. The prudent retiree will not lose sight of this primary objective. A false assumption of risk will force him to stay under-invested or over-leveraged. Such likelihood must be eliminated at all costs.
The last word
Vasco da Gama sailed nautical miles after nautical miles of choppy waters for his journey to and from India. Not for nothing was he hailed a pioneer. Opening up and strengthening the strategic spice route to India was his special contribution to Indo-European ties. As the Lisbon guide told me – he was elated to see an alert listener from India, really – da Gama was a man destined for greatness.
The retiree of my dreams must think like the great sailor-explorer. He must devise courageous plans, fight off the impact of market cycles, implement alternatives when the scenario worsens, and emerge a winner at all times. As the ever-polite Portuguese man on the street says at every turn, Obrigado!
The author is Director, Wishlist Capital Advisors