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3 Fixed Income Myths that can hold you back from reaching your finanical goals

3 Fixed Income Myths That Can Hold You Back from Reaching Your Financial Goals

by Holistic Leave a Comment | Filed Under: Financial Planning

You might have relied on fixed-income investments for a steady income along with your salary at some point in your life. You may even think that they are the safest bet to get returns in today’s volatile financial scenario. In this article, we will address some prevailing fallacies about fixed-income investments.

1) Fixed Income Assets Are Enough to Generate Wealth

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With today’s rising inflation rates of over 6%, it is impossible for fixed income assets to keep up with good returns every year. In fact, the amount of return you get from your fixed assets will not beat inflation at the meagre interest rate of 5-6% per annum.

In contrast, equity mutual funds give you a yield of 10-15% interest per annum. You can see that the difference of interest rates given between fixed-income investments and equity mutual funds is quite high, with equity mutual funds ruling the roost in terms of the return value.

Therefore, one can see that it is not possible to generate enough income from fixed-income assets alone in the longrun. By limiting yourself to fixed income instruments you would be doing a great disservice to your assets by depleting them in the long run in real value although their absolute value would remain the same.

Hence, it is wise to invest in equity mutual funds, or other equity-based funds to generate wealth in the long term.

2) Fixed Income Instruments Don’t Pose Any Risks

Fixed-income investment options might have been the safest option guaranteeing significant returns maybe some 30 years ago. But this is not the case anymore.
Fixed Income Instruments

  • In today’s day and age, no investment option is risk-free.
  • Fixed deposits have reinvestment risk, which means you might not get the same amount of interest on renewal after maturity.
  • There is the risk that your returns from fixed-income assets won’t beat inflation rates. This is the inflation risk.
  • Even Public Provident Funds are no exception as regards to their risk potency as their rates are being benchmarked to government security rates.
  • Furthermore, there is the risk of the inability to liquidate your fixed-income deposits during the lock-in tenure. This is called liquidation risk.
  • Also, there is the interest rate risk, which means changes in interest rates that adversely affect your returns from fixed-income assets.

3) Your Age Equals the Percentage of Your Investment in Fixed Income Assets

There is a general consensus among financial advisors about the percentage of investments in fixed deposits that their clients are advised to have. There is a general rule of the thumb that says that the client’s age should match the percentage of the amount invested by them in fixed income instruments.

For example, if you are 30 years old, your stake in fixed deposits should be 30%. While this might give a cut and dried solution to the investor, this is not the best approach. Every investor is a unique individual with different levels of risk appetite, financial goals, health concerns, and financial position.

Case 1:

A man at the age of 28 is aving money for his sister’s wedding which is planned 3 years from now. As 3 years is a short term, he needs to invest in more of fixed income investments. But as per the thumb rule, he needs to invest only 28% in fexed income. However, his personal situation demands more fixed income investments.

Case 2:

Another man at the age of 65 is building a portfolio for his grand son’s education which is 18 years from now. As 18 years is a long term, he needs to invest in more of equity investments. But as per the thumb rule, he needs to invest only 40% in equity. However, his personal situation demands more equity investments. The point to note here is that age and investment in fixed deposits don’t always go hand in hand. They may vary depending on your needs, goals, and risk appetite.

Final Thoughts

Keep in mind to keep your portfolio diverse and maintain a healthy balance between equity funds and debt funds.. Do not hesitate to consult a financial advisor for this purpose. A well-diversified and balanced portfolio is the solution for maximizing returns while cutting down on liabilities and risks.

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Jey S
24. September, 2021.
I have been using Holistic Investment Planners for the last three years. Mr. Srinivasavaradhan answered all my questions and doubts very patiently during the first free consultation. I was able to clearly define my short-, medium- and long-term goals once I signed up for the comprehensive plan and got their investment plan suggestion to achieve my goals. They are very polite and highly professional whenever I contact them for any queries or make investments. They never pressurize you to invest on their recommended financial products. I would have been lost money by investing directly without their help since I do not have time and knowledge about different financial products. Risk planning is also done as part of financial planning. Truly, they are holistic planners when it comes to your financial planning. They help you to define your life goals, understand your financial resources and establish a plan to invest towards reaching those goals. They do review your plan as you progress to make sure that you are on correct path to achieve those goals. Kudos to the team and keep up the good work!!! I am happy that I found holistic investment planners for my financial planning and management.
aksaswadkar
aksaswadkar
24. September, 2021.
I was about to retire and really not understanding how to invest money to have financial freedom and fulfilling my goals. Was desperately searching on internet way out and fortunately came across Holistic Investment Planners. I read number of articles on their website and realized that this is the agency which I want and engaged their services for my retirement planning. It is an excellent experience to be associated with Holistic. Right from day one our interaction was fantastic and they gave me such a wonderful plan that I had never imagined. I am fortunate enough to be in the client list of Holistic. I have recommended Holistic to my friends as well.
Lionel Faber
Lionel Faber
16. September, 2021.
I've been availing their services for the past year. They are highly knowledgeable in the field and are very patient with all doubts and queries. Personalized financial planning is provided keeping your short term, medium term and long term goals in mind. They do not pressurize you to purchase schemes of their choice. They provide their input and suggestions and leave the decision up to you which shows their honesty and high principle.
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Sridhar
8. September, 2021.
Financial planning brings peace in life. Holistic Investment have supported in arriving financial plan based on future goals. My investments are regular since then. They are professionals in their business, will recommend others.
Nitesh Agrawal
Nitesh Agrawal
6. September, 2021.
I have been using Holistic Investment Planners from last one year. The journey has been fantastic. Being a finance person myself I always thought we can look after and plan own finances also. However, due to lack of time and deciplain the things are not always as desired. After joining with Holistic Investment for the first time Icame to know the Financial goals and quantified them. Some dreams were unrealistic based on the earnings and savings so had a reality check. Also got the information and deciplain of investing on regular and more rewarding securities. I definetly suggest to use Holistic Investment Planners. They are professionals, available and hear youor full story before presenting plans. They are flexile in the sense if there are some urgent deviations required, they help to plan the same. For all professionals/individuals I would suggest using professional help of Holistic Investment Planners for best results in long term investment and financial goals achivements. Last advise will be to start early in your life. It really pays well to start in the beginning itself else the dreams needs to adjust :)
Swetha Vasanth
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6. September, 2021.
This is my first year service with the Holistic Team and I would say that they are very much helpful in creating a financial plan and follow ups during the year. I would definitely suggest them if anyone who is willing to proceed with their savings professionally.
Joseph Mathias
Joseph Mathias
6. September, 2021.
I came to know about Holistic Investment Planners online while searching for different investment ideas. Once I contacted them the journey was very smooth. Mr. Ramalingam explained all the aspects of Financial planning in detail and it opened my mind. I realized how important it is to have a Financial planning. Mr. Rajan suggested all the requirements as per my goals and made a Investment plan keeping in mind of my goals. I started my Investment journey with them. I wish I had done it some years back then it would have been in a different level. Review meetings were held every six month to check the implementation of the plan and check the results as per the requirements and to check if any changes required. Overall it was a good experience with Holistic Investment team and would like to continue in the years to come.
Srinvas Kannan
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30. July, 2021.
I came across Holistic investment planners almost 5-6 years back, but I did not have the trust since I had met a few of them who did not sound promising. Then I started investing through a financial advisor of my friend. After 4 years of investing the returns were very low. I was disappointed and started looking for financial advisors when I came across Holistic investment. I had a detailed discussion about my goals and the way they would approach achieving my goal before deciding to switch my investments to them. After a thorough analysis of my then existing portfolios, they suggested new ones and we zeroed-in on 6 schemes/funds where our investment would be split. I am glad I made the decision of switching over and taking Holistic planner's advise, my returns are handsome and I only wish I could have taken their help/advise 5 years back itself. Neverthless, I would like to recommend their services for investment and financial advise if someone is serious about their investments.
Shivaram Andiappan Selvaraj
Shivaram Andiappan Selvaraj
3. July, 2021.
I got a free first time consultation. I got my doubts resolved. They also gave additional advises for investment planning which was also useful.
Nellai B
Nellai B
26. June, 2021.
I have been associated with them for the past three years. They are very professional and polite in answering all our questions. I have complete trust in their suggestions. I strongly recommend for anyone. I am looking forward to have strong and successful association with them.
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