Investing Like A Pension Fund, Is It Possible For The Individual?

Pension funds with their attractive returns can be a model to emulate. How to invest your money as a pension fund? What asset classes to invest in? Through what media? With what investment horizon?

All our advice for individuals to invest as a pension fund and our estimate of the return on this type of investment.

WHAT IS A PENSION FUND?

A pension fund is an investment fund set up to provide individual funded retirement. It is a collective investment organization. The funds are collectively managed by a management company.

Throughout the beneficiary’s working life, the fund collects payments from either the employee or the employer. He then acquires part of the capital, also called retirement points. At the end of his professional activity, the beneficiary receives his share of capital in the form of a life annuity.

The first characteristic of a pension fund is its long-term investment horizon. Indeed, the investment period of a pension fund is very long, at least greater than 8 years, and very often of the order of several decades.

Another major pension plan investment restriction is their illiquidity, that is to say that the sums held in these envelopes are not available at all times. They even display a blocking period that is often quite long.

To invest as a pension fund, you will need to respect its two basic characteristics. It is therefore up to you to determine how much of your wealth you can devote to this type of investment.

What portion of your assets and your income can be immobilized in the long term? Evaluate the amount of the initial investment that you can make and the share of your income that you can devote to this type of investment (5% ? 10%? 20%? More?).

These amounts will of course depend on your financial assets and your income but also on your possible debt. Thus, if you repay the mortgage on your main residence, you may only be able to devote 5% of your income to this type of investment.

INVEST AS A PENSION FUND FOR RETIREMENT WITH A DIVERSIFIED PORTFOLIO

Diversification as the key word in asset allocation

Once the amounts that you can devote to a very long-term investment have been defined, it will be advisable to invest them as profitably as possible, taking inspiration from pension funds. And the key word is diversification.

Investing like a pension fund means positioning yourself in many assets (this is cash diversification) and in all asset classes: money market, equities, bonds, real estate.

But be careful, diversification is not limited to asset classes, it also concerns geographic areas (North America, Asia-Pacific, Europe, Japan, etc.), business sectors (banking, pharmaceuticals, energy, etc.) etc.), the investment methodology (Value, Growth, dividends, etc.) which consists of investing in more or less mature companies.

The objectives of diversification in your investment strategy

This diversification should allow you to meet two essential objectives: protect your portfolio and generate performance, whatever the economic situation.

Opting for different asset classes that are negatively correlated allows you to play it safe while guaranteeing you a relatively attractive return, regardless of the circumstances. In fact, stocks and mutual funds India will be favorable to you in times of growth, best investment bonds in India in times of recession, real estate in times of low interest rates, cash in times of deflation.