In Dec 2022, Mr Alam shared his financial journey: From a net worth of Rs. 6000 to auto-pilot goal-based investing. He has shared specific details of investments in this follow-up.
About this series: I am grateful to readers for sharing intimate details about their financial lives for the benefit of readers. Some of the previous editions are linked at the bottom of this article. You can also access the full reader story archive.
Opinions published in reader stories need not represent the views of freefincal or its editors. We must appreciate multiple solutions to the money management puzzle and empathise with diverse views. Articles are typically not checked for grammar unless necessary to convey the right meaning to preserve the tone and emotions of the writers.
If you would like to contribute to the DIY community in this manner, send your audits to freefincal AT Gmail dot com. They can be published anonymously if you so desire.
Please note: We welcome such articles from young earners who have just started investing. See, for example, this piece by a 29-year-old: How I track financial goals without worrying about returns. We have also started a new “mutual fund success stories” series. This is the first edition: How mutual funds helped me reach financial independence.
First, some excerpts from Mr Alam’s first article. For full details pl see the link in the first paragraph. By 2021, I thought that my investment was too messy, and I am totally confused about what to do and how to do it. So I decided to meet a CFP and fixed a meeting with him in my town. I learned a lot of things during the 3 hours of conversation. But he didn’t entertain me much as he was into handling financial decisions on his own on behalf of his customers, and he would earn a commission by selling regular mutual funds. And I was not ready for that. I felt it absurd to let others control my money and investment strategy.
So, I decided to do things by myself. Yes, it will not be easy. Yes, I will make mistakes. Yes, I will be confused. But I made myself mentally ready for that. I started tagging my assets to my goals.
When my other goals were sorted well, I thought mainly about “Child Education Planning”. Because I was stuck in this. If I can sort this out, I can also sort out retirement & marriage planning. I knew it. But I didn’t feel comfortable. So many questions came to my mind.
So, I purchased the “Goal Based investing” course hoping to get more answers. I watched all the videos and I got almost all the answers about personal finance that were bothering me.
Then I felt that it was possible to get into auto mode. I need to buy the “Robo Advisory Tool“. I bought it and almost sorted all the goals.
Then I felt that the MF goal tracker and stock portfolio Tracker is also great tool to visualize things. I bought it and started using it.
I almost sorted everything now. I was a little confused about some little things. I wanted to use my NSC amount for my Child’s Education and Retirement Planning. But I was confused about how to do it and use it in the calculator. So I wanted to have a fruitful discussion with a fee-only advisor.
I joined the AIFW Facebook group after getting the information from freefincal. I started to follow, and it’s a great platform; members are so helpful, honest and knowledgeable. There I found Chandan Singh Padiyar Sir (you can get details from the fee-only advisor post of Pattu sir) to be one of the most active and honest guys.
I tried to arrange a meeting with him, I didn’t want a robust financial plan but to discuss my thought process about what I am doing, if I am committing a serious mistake. I don’t bother about small mistakes, I will learn from it and will rectify things as per my capabilities. So, luckily I got a chance to fix a meeting with him and he was so generous to listen to me, my problem, my confusion and guided me in a simple way which was more important. I was confident about what I am doing, but after talking to him I am more confident now.
Now I am in the driver’s seat and I know where to go, when to go, and as I have a road map I know how to go. So, my investment journey is in auto-pilot mode now.
Emergency Fund:
- Savings Account
- Insta Redemption Liquid Fund (ICICI)
Term Insurance :
- 10X of annual income when I took
- HDFC Life – 5X
- TATA AIA – 5X
Health Insurance:
- HDFC ERGO – 10L
- Employer Benefits
Short Term Goal (upto 5 years):
For short term goals I use
- Liquid funds
- Money Market funds
- FDs
- Ultra Short Term Fund (for >3 years)
CAR Goal (5 years away – flexible):
I thought about investing in Canara Robeco Equity Hybrid fund with Canara Robeco Conservative Hybrid Fund as debt component. But I have to meet some short term goals. So, I won’t be able to invest for 15-16 months for this goal. So, I tagged some of my previously invested funds and left it as it is.
Equity – weight 42% – XIRR 12%
- Parag Parikh Tax Saver fund – Weight 58% – XIRR 26%
- Axis Long Term equity (tax) – Weight 33% – XIRR 11%
- Nippon alpha low volatility index fund – Weight 9% – XIRR (-8)%
Debt – weight 58% – XIRR 5%
- Canara Robeco Conservative Hybrid Fund
5 years to go (can stretch it to 6 to 7 years)
- Present Cost – 8L
- Inflation – 6%
- PTRE (Post tax return expectations) from equity – 9%
- PTRE from Debt – 5%
- Plan – Leave it as it is till I meet my short term goal, then I will think about it.
Child Education (15 years away):
Equity:Debt = 65:35
This was the toughest job for me. I was stuck at this. But all thanks to the Goal Based Portfolio Management course and the Robo Advisory Tool, everything is in autopilot mode now.
In NOV 2022 the ratio was 100% equity. I was Investing only in equity. I had a RD and I put 85% of the matured amount in equity funds. Later I realized that no matter how far a goal is, one can not just simply invest in equity and leave the investment on luck. If anything like corona happens during the goal completion year, what will happen to my fund? My hard earned money deserves better treatment than that. I need an asset allocation strategy. So, I shifted some funds from equity to debt and added some portion of my NSC (which will mature on NOV 2023) to make the ratio right. It took me about 3 months to get everything on track as per my plan.
For Equity I stopped fresh investment on active funds and chose UTI Low Volatility index fund and ICICI SENSEX index fund to invest from now (60:40).
- Why not a simple Nifty 50 index fund? Well, I like the concept of this factor based index as it is the simplest of all and the focus is to have low volatility in my portfolio and that’s why I invest 60% of the amount in this index fund.
- The Remaining 40% I invest in ICICI SENSEX fund.
- Mirae asset tax saver fund is more or less like a sensex index fund with a little downside performance. And also it has lock-in, so I have to keep it and treat it as an index hugger. ● Got rid of the other 2 active funds (Parag flexi + Axis small) and invested in index funds ● Yes, I have made some mistakes and that’s why I invested in so many funds for a goal, but it was my learning period. But I have no regrets, at least I tried something.
For Debt, I was so confused. First, I chose a gilt fund (ICICI) to invest in. Then I thought about having a conservative hybrid fund also. Then I felt that I have 15 years + . So, I can go with PPF. ● At last I opened PPF for my wife. I will also open a minor PPF and invest in it. And I chose an Arbitrage fund for Rebalancing purposes.
- PPF + Arbitrage – looks simple
- The gilt fund is not needed now, later whenever I get chance I will think about that ● When the NSC will mature, will invest the amount in PPF
Equity Mutual Fund: (Weight – 65%)
- UTI Low Volatility Index – weight 60%
- ICICI SENSEX index – weight 7%
- Mirae tax saver – weight 33%
- These are recent investments, so XIRR doesn’t matter
Debt Instruments : (Weight – 35%)
- PPF – weight 15%
- NSC – Weight 65%
- Arbitrage (Nippon) – Weight 20% – XIRR 5%
15 years to go
- Present Cost – 30L
- Inflation – 11%
- PTRE from equity – 9%
- PTRE from Debt – 6%
- Step up – 10%
- Plan – Reduce the equity AA systematically from 6th year onwards
- Remarks – I am comfortable but I don’t know whether I will be able to pull it off or not as things will keep changing along the journey as my daughter is just <2years old. But I will try my best.
Milestones
- To invest more than the Robo Advisory Tool —— I am already Investing about 30% more regularly than the amount of Robo Advisory Tool so that’s a good thing.
- The current cost of an undergraduate education matches the current value of your child education portfolio ——- Total Portfolio value is enough for Private Engineering College in Kolkata (I have done engineering in a private college).
- Total Debt Portfolio value is enough for General Courses in Kolkata
Daughter Marriage/Home (22 years away):
Equity:Debt = 67:33
Equity – weight 67%
Debt – weight 33%
These are recent investments, so XIRR doesn’t matter
22 years to go
- Present Cost – 12L
- Inflation – 8%
- PTRE from equity – 10%
- PTRE from Debt – 6%
- Step up – 10%
- Plan – I am investing at 67:33 (E:D). Investing pretty much less than required as it’s the least important goal as of now, just to get it going. Later on I will invest as per Robo Advisory Tool when I will have money to invest, after completion of my CAR goal maybe.
Retirement (29 years away):
Equity Mutual Fund: (Weight – 6%)
- UTI Nifty – weight 66%
- UTI Midcap 150 Quality 50 – weight 34%
- Currently I am investing – N50 : MC150Q50 = 2:1
- These are recent investments, so XIRR doesn’t matter
NPS: (Weight – 87.5 % & XIRR – 11%)
- I have opted Moderate Auto choice (HDFC PFM) in June 2022
- Upto 35 yrs of age – max equity allocation 50% – Rebalancing happens once a year (Birth Date)
- From 36th yrs of age, equity will reduce by 2% each year till 55 years of age and it will come down to 10% at 55 years of age
- Why Moderate auto choice? I have around 29 years for this goal. So, I have time. Being a central government employee, NPS is mandatory and is my most disciplined instrument with a great Investing CAGR of more than 10% on an average since mid 2016. Also I won’t have to do anything, no human intervention, also the equity will systematically reduce with yearly Rebalancing. The only risk is that HDFC (Equity) fund may or may not be able to beat an index fund. But it doesn’t matter to me. For now, my overall NPS is like a balanced hybrid fund and will be a conservative hybrid fund with a gilt majority at later stages. So, I am okay with it.
Fixed Instruments (Weight – 6.5 %)
- Term deposit – weight 3 %
- My PPF – weight 3.5 %
Overall Portfolio Equity: Debt = 50:50
29 years to go
- Inflation – 7% before & 6% after
- PTRE from equity – 10%
- PTRE from NPS – 8%
- Step up – 10%
- Plan – Increase the equity Mutual Fund allocation as per my capabilities.
Milestones
- Your Retirement Planning can be set on auto-pilot —— Now it’s on autopilot mode as per calculation in Robo Advisory Tool
- You can live off Your Net Worth for a certain number of years
○ If I were to retire today, the current corpus will last for (years) – 3 years ○ If I were to retire as intended, I will be financially independent for (years) – 5 years.
Reader stories published earlier:
As regular readers may know, we publish a personal financial audit each December – this is the 2020 edition: How my retirement portfolio performed in 2020. We asked regular readers to share how they review their investments and track financial goals.
These published audits have had a compounding effect on readers. If you would like to contribute to the DIY community in this manner, send your audits to freefincal AT Gmail. They could be published anonymously if you so desire.
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Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
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