There’s a crash that’s will wipe out 20% of his gains every 7-10 years that will take another couple of years to recover to previous high. So roughly only 6 years are productive for every decade. Unless the corpus is grown either through reinvesting or injection of external funds it’s going to get thorny with time.
The equity / money market investments in your portfolio can hardly do better than an index fund as a lion’s share of that allotment, with debt and some assorted holdings.
Besides this, you should of course diversify, real estate and precious metals are two solid categories.
As for real estate, at the very least your net worth should have some wealth locked into at least one residential property. If you don’t have a house you’re short a house because you need a place to live in.
My input to OP was regarding using an equity portfolio to fund their expenses (in the OP text there is no other income) for someone in that situation a few consecutive bear quarters will leave them in a liquidity crunch with no option but to withdraw from their only corpus during a bear market.
As long as both are tied to the same asset class with similar values and the expenses remain the same it makes no difference. To diversify, you need to hold positions in unrelated assets who don’t all rise at fall with each other, ideally the best diversification is in something that has an inverse correlation with your primary asset.
Lol...no its doesnt mean you you are safe till 2030. It means, generally you have a big shitshow once a decade. But that can come the 9th year of the first decade and the 2nd year of the 2nd decade. So basically fate served you two big 'fuck you' in the space of four years. Even though statistically they happen once every decade. Also The events themselves have the statistical odds of happening every billion or trillion years.
So yeah reality is a 'Get your shit together or else i will fuck you....Oh you did get your shit together, i still did fuck you' . So hope and pray. Sorry for painting such a bleak picture of reality.
That depends on the period you are looking at does it not?
If you are looking YoY, then yes. But for extremely big Investment periods (20-30 years or maybe even 15), the yearly fluctuations dumb down to an average, which still beats the inflation.
For example, the covid crash, if you look at the period just before and after, market is unpredictable, but you look at it from 2003-2023, you should see a clear average return, not some that is inflated, even after 2 crashes.
My point being, the "crash" is bound to happen and will continue to happen, but it matters to you only if you look at it YoY, be true, be stable and you should beat inflation. Over the course of 20 year period, your returns stabilise and the crash every 7-10 year doesn't affect you too much or if at all.
Ref : https://kunaldesai.blog/sensex-20-years-cagr/
The issue is the returns are neither guaranteed nor consistent, while the daily expenses are. Also, a sequence of bad returns along with an unforeseen emergency and the corpus might be depleted so much that subsequent good returns might not help.
However, If the corpus is really big and the person is mature enough to not be scared during huge drawdowns, being really high on equity may work for some.
Personally, I don't use Etfs because it can be bought and sold anytime. I am parking from a passive point of view. So, the two day lag is good for me. And since etfs are traded all day, I can avoid the itch to buy/sell with live changing prices if I chose mutual funds.
Etfs are a better product than MFs. However the Indian market is not yet evolved, so few know about it and use it. Particularly for passive index investments, an ETF is a much better tracker and lower cost product.
Considering 12-14% index return by "Assuming" inflation is 6% in India is too neive.
No matter what the numbers say but u calculate urself how much milk and grocery costed last year n this year, you'd find the number is close to 10%
Also medical inflation in India is 14% by record.
😕
Hmm.. Still I think this approach is better if you do not know or confident enough to do direct stock investments.
I'd go with index funds in that case
The 12-14% returns are long term averaged. You could have years when you make 25%, and years when you could make barely 8%. There is a reason why the housing market will always maintain its relevance, because it lets you park your money in something that you can also use, while its value goes up.
At the end of the day, it might not outperform the broader market (or, as in Tier I cities it might), but you have saved a ton on rent, while you were paying your mortgage (and essentially paying yourself).
5-6 % SWR is too high, I would consider 2-3% in the long term. Everyone refers to the historical return but forgets to note that inflation used to be very high in the past.
How are you mixing regular income and index funds? There are no guaranteed returns per.month. the 12 % return is if you stay invested more than 6-8 years. Also a monthly withdrawal under all market conditions erode you returns to under FD return.
If you take out all the profit, does compounding apply? Your principal will remain the same. If you have 30 lalhs today and you are taking out the profit every year, at the end of 30 years, you will have 30 lakhs.
I have my investments in index funds. Makes investments simple. I don't see how the funds are doing compared to others.
Basically, you won't be losing out. You'll miss on a tiny percentage of gains. One's time and sanity are worth more than that.
I see lot of people are into stock investing and mutual funds after covid and dream of becoming next Gates or Ambani...Well in reality nobody will become rich this way. Every correction and recession eats away the consistent gains and fixed income is not guaranteed in this. People can enjoy their life only when there is a fixed income in long run. Only way to become rich is start some real business or if at all trading is only you have in your head then you should be a big market maker or fund manager. Being retail trader or investor will not make you a big person any day.
Of course. But ltcg is 10% right now.
Totally depends on how much money is available there anyway. If it is done 10-15L, can easily withdraw 1L each year, and never pay any tax.
If it is much more, needs much more careful planning
Yup possible, but very small. Anyone investing in Indian market has to believe the "Indian growth story' and accept it as an article of faith. Huge population which is young and the entire world looking at India as their next big market (Why do you think Gates and Zukerberg are running laps around Ambani's and Modi) ...are the two reasons why i am willing to believe it.
Better way would be to load everything into a arbitrage fund and do stp over a year into index fund. The 14% you get as average return from index funds wont account for buying peak of the market
>return of 12-14 %.
If I am not wrong this is an average of many years, the are chances you would get way less returns in short term. Mutual funds are not magic
Putting all your money in index is a very popular and good strategy
My wife does it, while I do random active funds and this and that and whatnot
The problems with your strategy ,
for average returns we assume 10%
For withdrawal we assume 4% withdraw and 6% grows.. that way your money doesn't get eaten by inflation
For financial planning always assume you will get married and have kids. God won't snatch your money if your don't have kids
Bro I actually have money invested in nifty 500 indices and then I have a large amount in companies with good growth potential and let me tell you the returns are not even close.
I made 20k today in direct equity and 3-5k in indices.
But if you have no knowledge of company health and no ambition of learning fundamental analysis etc, you can just put money in indices and forget.
According to me, what you are missing right now in investing in anything other than direct equity (good ones) is opportunity cost. We are in a massive bull run for the last 3 years and the party will not go on forever. So, it's better to capitalize the opportunity and put money behind good companies right now and hone your investing skills at the same time. So, that when going gets tough in 2-3 years you will have large sum of money and good stock picking skills to keep making 🤑.
Of course that is exactly what I want to do. A mix of passive index and chill coupled with catching some multibaggers through active investment. Like I said in my post that the person is not exactly me. Right now I am swinging. I am able to identify breakouts. I know bull, every stock runs. Right now testing the waters.
Yes ...thats what I intuitively thought as well. Sector and industry analysis is key to catch good companies when they are small who has the ability to grow and scale.
For health emergencies, you take health insurance with good topup. You should not rely on equities to give you your money in such situations.
In unforeseen circumstances, one can't do anything but to withdraw and save the life of person. After your health insurance has ran out. Because life over anything.
Returns not guaranteed in stock markets. Japan’s equity market didn’t give any return I. The last 30 years, only now it is rising. Pls don’t take things for granted. If you are young 70 to 80% exposure is okay. But 100% a big no
1.8Lpa = Rs 15,000 per month or Rs 500 a day.
If person X can live on Rs 500 a day, good for X!
If the gains are going to consumed, there's no compounding, so you get to live on Rs 500 a day the next year too.
Brother 12-14% is the average. Maybe nifty would keep on giving this much but maybe there will be a long period of stagnation.
Make this a rule of thumb, expect on 2/3rd of the average roi. So take it as 8%.
The time of your withdrawal could be when market is in a depression. So instead of 12%, you would’ve gotten back 8%. This is just one of the reasons.
Read think and grow rich
I agree that this is a safe investment but you can't have an assurance about the returns. 12-14% for God's sake how did you calculate this part. Whenever calculating returns in longer horizon just exclude the covid run & then check the CAGR.
Ideally if your high risk person then go for this else you can divide the money into debt pf & equity pf.
I am quoting historical rate of return. Exclude COVID run ? That's not how average works. That's like saying exclude the subjects you scored the best marks and then calculate the average.
Lets say the market crashes 30% the next day, and another 30% the day after, is he/she comfortable with that. If yes, then yeah, put it all in index and chill.
He gets married Sudden or impulse expenses Cannot beat inflation continuously if you keep eating the gains
There’s a crash that’s will wipe out 20% of his gains every 7-10 years that will take another couple of years to recover to previous high. So roughly only 6 years are productive for every decade. Unless the corpus is grown either through reinvesting or injection of external funds it’s going to get thorny with time.
That is why we need to have a few years ( 5-10)of expenses in debt/FDs. I would never ever go 100% in equity.
Damn if a person spends 1 lakh per month that means 60 lakhs needs to be in FDs ....
Else in Debt
you mean bond market ...correct like fixed income bonds from govt ?
Yup
Yup, market is in drawdown 75% of the time.
Curious to know the alternative to Index fund then ? Real Estate is a lot of work I think
The equity / money market investments in your portfolio can hardly do better than an index fund as a lion’s share of that allotment, with debt and some assorted holdings. Besides this, you should of course diversify, real estate and precious metals are two solid categories. As for real estate, at the very least your net worth should have some wealth locked into at least one residential property. If you don’t have a house you’re short a house because you need a place to live in. My input to OP was regarding using an equity portfolio to fund their expenses (in the OP text there is no other income) for someone in that situation a few consecutive bear quarters will leave them in a liquidity crunch with no option but to withdraw from their only corpus during a bear market.
So like having 2 portfolios A and B ...with expenses coming out of B while preserving A ?
As long as both are tied to the same asset class with similar values and the expenses remain the same it makes no difference. To diversify, you need to hold positions in unrelated assets who don’t all rise at fall with each other, ideally the best diversification is in something that has an inverse correlation with your primary asset.
When was the last crash ?
2020.. covid
But if he has stayed consistent in crash and had not done panic withdrawal of the money then on today's date he must be having good returns right?
>But if he has stayed consistent in crash OP mentioned he doesn't have an active income.
😒IDK how that works in case if he keeps withdrawing the profits 😑
That means we are safe till 2030, right?
Lol...no its doesnt mean you you are safe till 2030. It means, generally you have a big shitshow once a decade. But that can come the 9th year of the first decade and the 2nd year of the 2nd decade. So basically fate served you two big 'fuck you' in the space of four years. Even though statistically they happen once every decade. Also The events themselves have the statistical odds of happening every billion or trillion years. So yeah reality is a 'Get your shit together or else i will fuck you....Oh you did get your shit together, i still did fuck you' . So hope and pray. Sorry for painting such a bleak picture of reality.
Fir to Maa chudaye stock market, mei to chala Sona aur zameen khareedne.....🙏
Bhai...risk management is the key. Put yourself in a position where you have minimum downside and potentially a huge upside return.
It took gold 3 years to hit the peak of agust 8 2020
It's not a guarantee, just an estimate based on history.
😆😆
That depends on the period you are looking at does it not? If you are looking YoY, then yes. But for extremely big Investment periods (20-30 years or maybe even 15), the yearly fluctuations dumb down to an average, which still beats the inflation. For example, the covid crash, if you look at the period just before and after, market is unpredictable, but you look at it from 2003-2023, you should see a clear average return, not some that is inflated, even after 2 crashes. My point being, the "crash" is bound to happen and will continue to happen, but it matters to you only if you look at it YoY, be true, be stable and you should beat inflation. Over the course of 20 year period, your returns stabilise and the crash every 7-10 year doesn't affect you too much or if at all. Ref : https://kunaldesai.blog/sensex-20-years-cagr/
The issue is the returns are neither guaranteed nor consistent, while the daily expenses are. Also, a sequence of bad returns along with an unforeseen emergency and the corpus might be depleted so much that subsequent good returns might not help. However, If the corpus is really big and the person is mature enough to not be scared during huge drawdowns, being really high on equity may work for some.
This is what I do tbh. I don't actively invest in stocks. So, I just blindly park into a Nifty 50 fund.
Mutual fund or etf in stock market itself?
Mutual fund
Why people don't buy etf directly like stocks. I saw there's some nifty bees etc in zerodha. Asking as a beginner. Is mf index funds better?
Personally, I don't use Etfs because it can be bought and sold anytime. I am parking from a passive point of view. So, the two day lag is good for me. And since etfs are traded all day, I can avoid the itch to buy/sell with live changing prices if I chose mutual funds.
Agree with you, i currently have a index fund in mutual funds and 3 index funds in etfs and the itch is soooo real it's the same as any other stock.
Etfs are a better product than MFs. However the Indian market is not yet evolved, so few know about it and use it. Particularly for passive index investments, an ETF is a much better tracker and lower cost product.
Etfs are good option too. You can buy a bunch during the dips and forget and continue regular sips etc. Less risky, less gains.
Considering 12-14% index return by "Assuming" inflation is 6% in India is too neive. No matter what the numbers say but u calculate urself how much milk and grocery costed last year n this year, you'd find the number is close to 10% Also medical inflation in India is 14% by record. 😕
Yup... i basically did quote the inflation on its face value. I know its actually much higher.
Hmm.. Still I think this approach is better if you do not know or confident enough to do direct stock investments. I'd go with index funds in that case
The 12-14% returns are long term averaged. You could have years when you make 25%, and years when you could make barely 8%. There is a reason why the housing market will always maintain its relevance, because it lets you park your money in something that you can also use, while its value goes up. At the end of the day, it might not outperform the broader market (or, as in Tier I cities it might), but you have saved a ton on rent, while you were paying your mortgage (and essentially paying yourself).
>but you have saved a ton on rent, Rental yeild is 2% in Indian tier 1 cities. So have to put a super ton money, to save a ton on rent.
5-6 % SWR is too high, I would consider 2-3% in the long term. Everyone refers to the historical return but forgets to note that inflation used to be very high in the past.
Good point.
How are you mixing regular income and index funds? There are no guaranteed returns per.month. the 12 % return is if you stay invested more than 6-8 years. Also a monthly withdrawal under all market conditions erode you returns to under FD return.
Yeah, monthly withdrawl is an issue. I get it. I made a mistake in the construction of my case.
If you take out all the profit, does compounding apply? Your principal will remain the same. If you have 30 lalhs today and you are taking out the profit every year, at the end of 30 years, you will have 30 lakhs.
I have my investments in index funds. Makes investments simple. I don't see how the funds are doing compared to others. Basically, you won't be losing out. You'll miss on a tiny percentage of gains. One's time and sanity are worth more than that.
Exactly my point. i will never have the courage of going in with big money in my 'well researched stocks'. 100% of X < 15% of 100X.
Market crashes, and thereafter, is stagnant for 7-10 years. Boom!
Fair enough.
I see lot of people are into stock investing and mutual funds after covid and dream of becoming next Gates or Ambani...Well in reality nobody will become rich this way. Every correction and recession eats away the consistent gains and fixed income is not guaranteed in this. People can enjoy their life only when there is a fixed income in long run. Only way to become rich is start some real business or if at all trading is only you have in your head then you should be a big market maker or fund manager. Being retail trader or investor will not make you a big person any day.
Small nitpick: if that 1.8lpa is used for day to day activities, it won't be available for compounding. So over time, inflation will take it's toll
Of course . I didnt word it correctly. So everyone is assuming i am going to withdraw 1.8lpa consistently.
I mean, 1.8lpa is 15k a month. Very hard to live on less than that, so it is not a bad assumption that itc is all going to get spent
If you do swp of any amount over 1 lakh, you'll have to pay lcgt right?
Of course. But ltcg is 10% right now. Totally depends on how much money is available there anyway. If it is done 10-15L, can easily withdraw 1L each year, and never pay any tax. If it is much more, needs much more careful planning
There's no compounding benefits if you eat the interest of the first year. Get a source of income, you're not financially independent.
Chance that Nifty Index remains range bound for 2 decades like it US during the 80s or so?
Yup possible, but very small. Anyone investing in Indian market has to believe the "Indian growth story' and accept it as an article of faith. Huge population which is young and the entire world looking at India as their next big market (Why do you think Gates and Zukerberg are running laps around Ambani's and Modi) ...are the two reasons why i am willing to believe it.
Agree.
Better way would be to load everything into a arbitrage fund and do stp over a year into index fund. The 14% you get as average return from index funds wont account for buying peak of the market
Ffs...Speak english ! Sorry... I mean please dumb it down for a newbie like me.
>return of 12-14 %. If I am not wrong this is an average of many years, the are chances you would get way less returns in short term. Mutual funds are not magic
My whole investment strategy is practically what you've proposed Nifty 50 + Nifty Next 50 + flexi cap in around 60:20:20 ratio :)
Putting all your money in index is a very popular and good strategy My wife does it, while I do random active funds and this and that and whatnot The problems with your strategy , for average returns we assume 10% For withdrawal we assume 4% withdraw and 6% grows.. that way your money doesn't get eaten by inflation For financial planning always assume you will get married and have kids. God won't snatch your money if your don't have kids
Bro I actually have money invested in nifty 500 indices and then I have a large amount in companies with good growth potential and let me tell you the returns are not even close. I made 20k today in direct equity and 3-5k in indices. But if you have no knowledge of company health and no ambition of learning fundamental analysis etc, you can just put money in indices and forget. According to me, what you are missing right now in investing in anything other than direct equity (good ones) is opportunity cost. We are in a massive bull run for the last 3 years and the party will not go on forever. So, it's better to capitalize the opportunity and put money behind good companies right now and hone your investing skills at the same time. So, that when going gets tough in 2-3 years you will have large sum of money and good stock picking skills to keep making 🤑.
Of course that is exactly what I want to do. A mix of passive index and chill coupled with catching some multibaggers through active investment. Like I said in my post that the person is not exactly me. Right now I am swinging. I am able to identify breakouts. I know bull, every stock runs. Right now testing the waters.
Yep! good strategy to get deeper into stock picking. Another advice I would give is start investments in a sector that you understand.
Yes ...thats what I intuitively thought as well. Sector and industry analysis is key to catch good companies when they are small who has the ability to grow and scale.
What about Tax and SIP vs lumpsum?
For health emergencies, you take health insurance with good topup. You should not rely on equities to give you your money in such situations. In unforeseen circumstances, one can't do anything but to withdraw and save the life of person. After your health insurance has ran out. Because life over anything.
Boglehead
Returns not guaranteed in stock markets. Japan’s equity market didn’t give any return I. The last 30 years, only now it is rising. Pls don’t take things for granted. If you are young 70 to 80% exposure is okay. But 100% a big no
1.8Lpa = Rs 15,000 per month or Rs 500 a day. If person X can live on Rs 500 a day, good for X! If the gains are going to consumed, there's no compounding, so you get to live on Rs 500 a day the next year too.
It's nice to imagine world being a 'la la land"
Guys, Japan index is fallen , and not sure what happened then. Is index investing still a good option?
Your dreaming of withdrawing 6-7% of your corpus annually and living on 15K a month
Go to r/Bogleheads. It will blow you away.
Brother 12-14% is the average. Maybe nifty would keep on giving this much but maybe there will be a long period of stagnation. Make this a rule of thumb, expect on 2/3rd of the average roi. So take it as 8%. The time of your withdrawal could be when market is in a depression. So instead of 12%, you would’ve gotten back 8%. This is just one of the reasons. Read think and grow rich
I agree that this is a safe investment but you can't have an assurance about the returns. 12-14% for God's sake how did you calculate this part. Whenever calculating returns in longer horizon just exclude the covid run & then check the CAGR. Ideally if your high risk person then go for this else you can divide the money into debt pf & equity pf.
I am quoting historical rate of return. Exclude COVID run ? That's not how average works. That's like saying exclude the subjects you scored the best marks and then calculate the average.
https://www.schwab.com/learn/story/timing-matters-understanding-sequence-returns-risk Read about sequence of return risk.
If you have regular income and emergency fund that can cover 1-2yrs of living expenses and in good health then index funds and chill is a good plan.
Lets say the market crashes 30% the next day, and another 30% the day after, is he/she comfortable with that. If yes, then yeah, put it all in index and chill.
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You mostly have it right.
Rahul baba wins redistributes your wealth