Unlocking senior wealth in Sri Lanka

‘‘It is generally accepted that risk aversion increases with age. Since older investors are less risk tolerant, they tend to take a passive approach – whereby they invest in high dividend yield companies with long term growth potential - Achindi Silva, Senior Investment Advisor at Softlogic Stockbrokers

‘‘Most senior citizens are not aware of alternative investment instruments such as unit trust funds (which provide flexibility to withdraw at any time and returns as great as fixed deposits) and high dividend yield stocks -  Randinith Madanayake, AGM & Head of Marketing, First Capital Holdings PLC

‘‘Due to the rising inflation rates experienced in Sri Lanka, senior citizens face erosion in purchasing power in relation to savings and investments. This means that even if they have invested in relatively stable assets (like fixed deposits or bills / bonds) the real value of their returns may decrease over time - Yaveen Jayasekara, Chief Strategy Officer of Acuity Partners

Sri Lanka is in the midst of a quiet revolution, one that is not marked by political upheaval or technological breakthroughs, but by the subtle shifting of its demographic landscape. The island nation is aging at a remarkable pace, outpacing its South Asian neighbours. 
World Bank projections paint a stark picture: the proportion of Sri Lanka’s population aged 60 and above is set to soar from the current 16 percent to a staggering 25 percent by 2041. This demographic transformation, fueled by increasing life expectancy, declining birth rates, and significant emigration, presents a formidable challenge. 
As the nation grapples with mounting economic pressures, including rising inflation and a sluggish economy, it is the elderly who find themselves most vulnerable. Facing financial constraints exacerbated by age-related health issues, dwindling job prospects, and a lack of robust social safety nets, Sri Lanka’s older generation is at crossroads. 
Traditionally reliant on family support, this once-stable pillar is now eroding, strained by economic turmoil and a surge in migration. The time-honoured safety net of family care is fraying, leaving many elderly Sri Lankans to navigate a precarious future alone.

Options for senior citizens

As the population of senior citizens continues to grow in Sri Lanka, it is crucial to consider investment options that can provide financial security and stability for this demographic. Senior citizens require a regular and stable source of income to cover living expenses, healthcare costs, and other day-to-day needs. As such, investments must be made in a way in which they can beat inflation, preferably in low-risk assets so that they do not suffer losses. 
In Sri Lanka, the senior citizen fixed deposit interest scheme has gained significant popularity among the elderly population. This scheme offers interest rates that are marginally higher than those offered to the public, and therefore preferred by senior citizens. 
Despite the drastic reduction in interest rates on fixed deposits (with rates being slashed from 23 -27 percent in 2022 to a current range of between 10 -12 percent) fixed deposits continue to provide a sense of security and are a popular choice due to their simplicity, reliability, steady returns and liquidity. 

Diversifying risk

One of the best ways to diversify risk from falling interest rates is to invest in fixed deposits with varying maturities. As such, they may invest capital that would not be needed for some time in longer term deposits, with the rest spread across a range of short to medium term deposits. By taking advantage of such diversification initiatives, seniors can enjoy a steady income stream and protect themselves against inflationary pressures.
Banks and financial institutions also offer specialized savings accounts with preferential interest rates and additional benefits tailored to the needs of senior citizens. For instance, Sampath Sanhinda Saver Account, Commercial Bank Udara Senior Citizens Account and Nations Prabuddha Senior Citizen Savings Account to name a few.
Although traditional options like fixed deposits and savings accounts remain popular among seniors, there are other investment avenues worth exploring as well.
While generally considered riskier, senior citizens may opt for conservative stock market investments. By investing in stocks, seniors can generate income through consistent dividends and the potential for capital gains. The Colombo Stock Exchange provides a platform for investors to trade shares of listed companies in a wide range of sectors thereby capitalizing on the growth potential of different industries.  
Despite the inherent risk factors associated with stock market investments, the recent economic downturn has opened a window of long-term investment opportunities in Sri Lanka. This is particularly true of the tourism sector – where shares are not currently traded at their optimal level due to the negative impact of the Easter Sunday attacks, COVID-19 pandemic and economic crisis that occurred over the last four years. However, since the industry has a massive growth potential given the expected revival in tourist traffic to the island nation in the next 2-3 years, senior citizens with an appetite for capital gains and substantial dividend growth will benefit from investing in tourism and leisure related stocks. Additionally, the domestic debt restructuring plan has alleviated the ‘fragility’ of the banking and financial sector, thus enabling shares in this sector to have preserved their value and shown steady growth in dividends over the years.  
Bringing in her perspective on the matter, Achindi Silva, Senior Investment Advisor at Softlogic Stockbrokers (Pvt) Ltd pointed out that investment advice given to senior citizens depends greatly on their individual risk appetites. 
“When senior citizens approach us, asking for advice regarding investments in equity / capital markets, we determine their risk appetite and advise them accordingly. It is generally accepted that risk aversion increases with age. Since older investors are less risk tolerant, they tend to take a passive approach – whereby they invest in high dividend yield companies with long term growth potential. However, there are others that go for risky/active trading as well – these are most often individuals who have been trading for a long period of time. There are also individuals who buy and hold shares. It all depends on the risk appetite of the senior citizen.” 

For those with low risk appetite

Apart from listed shares, listed debentures also provide steady income with a low risk profile, while also yielding a higher interest rate than fixed deposits. In the recent past, many banks like Bank of Ceylon, Commercial Bank, DFCC and Sampath Bank issued listed debentures, allowing senior citizens to diversify their investment portfolio and realize capital gains according to interest rate fluctuations in the financial markets. Being listed on the Colombo Stock Exchange, debentures also have a secondary market and investors will be able to exit from the investment at any time, subject to provisions stipulated at the time of issuance. The disadvantage of listed debentures is the minimum subscription requirement at the initial issue which may be considered a burden to the investment portfolio of a senior citizen. 
Unit trust funds are also becoming a popular choice for investors looking to diversify their portfolios. Senior citizens generally avoid investing in risk-related investment schemes as they cannot bear losses associated with market-related instruments. However, one of the advantages of unit trusts is that investors’ hard-earned money is managed by a professional fund manager, thus allowing senior citizens to hedge real returns and beat inflation.
While the share market may present exciting opportunities, it is essential to be aware of the risks and challenges involved including market volatility, currency risks, regulatory and political risks, liquidity risk and lack of information transparency. Successful participation in the stock market requires a solid understanding of its intricacies and a strategic approach. This involves keeping track of company news, researching financials and market positions of companies, and looking for companies with a strong competitive advantage and a track record of consistent growth. 
Investment in retirement plus life protection plans can also serve as a means of retirement planning for senior citizens in Sri Lanka. By investing in pension plans or annuities, individuals can secure a regular income stream during their retirement years. Pension saver life insurance schemes, such as those provided by SLIC, Ceylinco Life, Softlogic Life, also provide individuals with comprehensive coverage against unforeseen events such as disability or critical illness.  
Taking into consideration the current volatility in the macroeconomic landscape of the country, purchasing gold may also be an option for senior citizens, because of its high liquidity and value retention ability. Gold can also hedge against inflation by remaining steady in value. 
As the general cost of goods rise, gold values rise along with them. This is partly because gold is available in limited quantities, allowing gold owners to better preserve their purchasing power, even as low interest rates drive up prices. The most common way to invest in gold in Sri Lanka is to purchase gold bullion from banks or brokers, always ensuring that the purchase is made from reputable sellers only.

Stable option of real estate

Real estate also offers a stable investment option to senior citizens, that can provide both passive income in the form of rental income as well as long-term growth potential. Since real estate investments have the potential for capital appreciation over time, they allow seniors to build wealth and even leave a tangible asset for future generations. Investing in real estate also provides a sense of security, being tangible and less susceptible to market fluctuations, while also giving seniors an opportunity to diversify their investment portfolio. It is essential to carefully assess the real estate market and associated risks, as Sri Lanka confronts the challenges of a post-crisis landscape. With proper research and planning, this form of investment can be an effective way for seniors to secure a safe future while enjoying the benefits of property ownership.

Challenges to be mindful of

An economic crisis can be a challenging time for investors, as uncertainty and volatility dominate the financial markets. Highlighting the impact of the current crisis on the investment potential of senior citizens, Yaveen Jayasekara, Chief Strategy Officer of Acuity Partners (Pvt) Ltd had the following to say: 
“There are several ways in which the country’s economic challenges affect older investors. 
Due to the rising inflation rates experienced in Sri Lanka, senior citizens face erosion in purchasing power in relation to savings and investments. This means that even if they have invested in relatively stable assets (like fixed deposits or bills / bonds) the real value of their returns may decrease over time,” he said.
Decreasing interest rates and the resulting reduction in income from investments will also affect the overall financial state of senior citizens. Interest rates are declining continuously at the moment, with the 1-year T-Bill rate based on yesterday’s auction being 10.02 percent compared to 10.73 percent the previous week.
Significant devaluation of the Sri Lankan rupee (which is forecast to happen during the latter part of this year) can affect the value of products purchased in Sri Lanka, further increasing the cost of living for senior citizens, especially if they are accustomed to purchasing imported goods or services.
Senior citizens who have invested in stocks or equity mutual funds may be affected by volatility in the stock market. Economic uncertainty or negative news can lead to fluctuations in stock prices, potentially impacting the value of their investment portfolios.
Government policy changes in relation to taxation, retirement benefits or investment regulations can affect senior citizen investments. For example, alterations to pension schemes or retirement age requirements may impact the financial planning of senior citizens.
Finally, in times of economic uncertainty, healthcare costs may continue to increase significantly, putting additional financial strain on senior citizens, particularly those who require frequent medical attention.”
However, even when difficult times prevail in an economy, there are several investment options available to individuals seeking to protect and grow their wealth. 
“Most senior citizens are not aware of alternative investment instruments such as unit trust funds (which provide flexibility to withdraw at any time and returns as great as fixed deposits) and high dividend yield stocks. Real estate is another instrument gaining popularity amongst the higher income or savvy older investors” observed Randinith Madanayake, AGM & Head of Marketing, First Capital Holdings PLC.

Importance of regular portfolio monitoring  

Considering the current economic circumstances and resulting risk appetite of the senior citizens, regularly monitoring one’s portfolio of investments is crucial. Given that the risk tolerance of older investors is generally conservative, it is prudent to periodically rebalance their portfolio to ensure it aligns with their objectives and risk profile. 
The portfolio should also be optimized for tax efficiency – using tax-advantaged accounts and investments with favourable tax treatment ensure that senior citizens can maximize their after-tax income in their golden years. 
It is advisable that investment decisions should be made in consultation with a qualified financial advisor who can provide personalized guidance based on an individual’s unique circumstances and objectives. Senior citizens, like all investors, must stay informed about the latest market developments and investment opportunities to make wise choices that help secure their financial future.