At retirement or close to retirement stage, the stakes are high, It is not a good time to make carefree investment decisions or gamble because there isn’t enough time to make up for errors. It is advisable to look well before you leap. People often go against this simple rule to make some mistakes which may burn their fingers or hands, which may be very costly. You may lose your retirement fund in the following instances:
Investment with Little Knowledge:
Retirees who do not adequately plan for their retirement often fall for booby traps. They tend to jump at quick money schemes or businesses they know nothing about in their bid to make up for their lapses in retirement planning. Many have got their fingers burnt by these schemes or businesses leading to loss of their retirement savings.
When presented with an unfamiliar investment vehicle, it is advisable to first take some time to learn as much as you can and then invest in small increments. Also, it is advisable never trust anyone who tries to pressure you into handing over your retirement funds for fast schemes because it could be a fraud or a Ponzi scheme. Indulging in betting and gambling spree is also dangerous.
Large outlays in stock market:
Stock market can be volatile with periodic gains and losses according to market sentiments. Investing your retirement money in “can’t miss opportunities” with promises of spectacular returns is a very risky endeavour. However, if you like the thrill, it is advisable to invest a small amount rather than a large chunk. No single investor can outperform the market – at least not for long. It is always better to play safe and allocate your assets optimally.
Private, risky or unsecured loans:
Private loans promise high rate of interest but not without high default risk. Just like other bilateral agreement in Nigeria, contract enforcement is quite poor while monitoring, and legal cost can be huge on individual scale.
Similarly, contributing your fund to business ventures that extend loan facility is also as risky as giving out direct loan because the company could go bankrupt. Therefore, it is safer to avoid them and where you go for high yield strategy, don’t put all your eggs in one basket.
Invest in illiquid real estate deals:
Real estate investments promise long-term capital gain and occasional rental income. Landed properties and some real estate developments fall within the categories of capital gain alone with high percentage returns. However, it demands smart investment strategies and adequate knowledge of the business and the market. Where the deal does not work, the only option is to wait for future sale to recoup the investment. During the wait period which may be unusually long, you could end up with frozen asset and no income until the market recovers and the deal is struck. To avoid this scenario, it is advisable to invest in Real Estate Assets Portfolio with distributed risk and return.