Time and changed and so has our lifestyle. Communication has got better and technology has made things faster. But, did our attitude towards money management when compared to our parents and grandparents change? Yes, it has. There are many reasons for this – inflation, uncertainty and so on. Let us see some major differences here.
Safety of Capital
In most of the products available at that time, one thing which was certain was safety of capital. This was because most of those products were from post office or government organizations. They also offered decent returns which meant the investor did not have to look to alternate options.
Diversification was mostly not needed as the existing products provided returns which beat inflation by big margin. Also, there weren’t too many options as there are today in order to look for diversification.
Monopoly in Life Insurance
As far as life insurance was concerned, it was a monopoly. Only LIC was the trusted company which had wonderful claim settlement record and also gave back some returns.
Real estate was the best bet for many in the previous generation. It gave tremendous returns. The growth in the economy started driving real estate. It took the middle class to the next level.
High Risk Products
In order to combat inflation, high risk products have been introduced in the market such as mutual funds. They invest in equity oriented instruments and thus are able to beat inflation. Unlike the older generation, the new generation needs to pick such products as safer products like FDs do not match inflation.
Uncertainty is all over the world today. There is no guarantee that one product will be sufficient to achieve all your goals. You need to split your investment into multiple products with varied risk appetite and time frames to fulfil your dreams.
Defined benefit schemes have made way for defined contribution schemes. Retirement life is not financially secured for today’s generation. Insurance based pension plans charge more and yield less. PF and NPS will give some relief but may not guarantee anything substantial. Hence, we need to plan well in advance for this goal and also treat it as a priority.
Importance of Term Plans
There are many insurance plans in the market which claim to offer good investment with insurance but fail miserably. Only form of insurance which actually provides proper insurance at a decent cost is term insurance. Moreover, online version is much cheaper and easier to buy. So, term plans take care of insurance and Mutual Funds, FDs, PPF, etc take care of investment.