Investment Objectives & Advice

Path to Financial Independence: 10th year anniversary

“Remember to celebrate the milestones as you prepare for the road ahead.” – Nelson Mandela

In 2011, I first thought about the financial independence and wrote in Path to Financial Independence almost 10 years back. Even though my calculations of numbers were basic but I was thinking correctly about the issue & steps to resolve it. As the time passed, I get more and more organized as well as closer to my financial independence goal. Retire early or not, The Financial Independence continues to be main focus for me [#FIRE].

One major shortcoming of my basic calculations were the under appreciation for the impact of inflation, I am not talking about the normal reported inflation but the personal inflation. Common inflation would be 6-8% annually but personal inflation or what we call Lifestyle creep is much higher. In my bachelor life, My monthly expenses were 15-20k as most resources were funded by 4-5 people staying together. Post marriage they jumped by >100% as you need to bear the whole expenses at your end. There are other expenses, which increase due to upgrade of lifestyle like moving from bike to car, travelling by Flights vs. Trains etc. [Check my detailed article on Lifestyle inflation]

At the end of 2020 (Year in Review), I had accumulated the 27x portfolio [Currently ~33x] to my current expenses. By traditional benchmarks/ thumb rules, this milestone could be termed as Financial Independence milestone but as I explained in the analysis for a friend that it might not be sufficient for sure. In last 10years, my portfolio has grown by 41x at a compounded rate of growth of 47%. As I am slowing transitioning from the Phase 1 to Phase 2 of wealth cycle, The primary factor of the growth has been the increase in income & corresponding increase in savings. Now the growth in portfolio is increasingly driven by returns, 2020 growth by returns was > the overall absolute growth in any of the years from 2012-2017. Think & understand this point better as per your position in the wealth cycle.

41x Portfolio Growth in 10 Years

In the last 10 years, There have been many lessons for improving the returns, which I plan to leverage in the next decade. The most important lesson among all is the concept of less is more. Earlier in my investing journey, I invested into various stocks & mutual funds. Tried chasing returns and did it successfully too. As your portfolio size start increasing, it is much more efficient to be a buy & hold investor. When you have higher churn rate in portfolio, you need to worry about the cost of transaction, exit loads, Tax implications. for e.g. you identify the opportunistic equity investment of 25% return in a year with INR 100k investment you book a profit of INR 25k next year (No capital gain tax) but if portfolio size is INR 1mm then INR 250k would mean INR 15k as capital gain tax. Higher churn also means more number of decisions to be taken, which in turn increases the probability of wrong calls. Below are the steps to be taken to improve your long term returns with lower churn:

5 lenses to identify the right investment portfolio
  1. The portfolio design should satisfy each of the five requirements in terms of returns, risks, liquidity, tax and your time horizon. It is a crime to invest your 1year ahead required money in equity like risky product as well as keeping all your 15-20 year far goal in 100% debt
  2. Buy right products in your core portfolio with relevant diversification as no one asset class would continue to be the lead return generating
  3. Diversification do not mean that you end up buying lots of funds or stocks. Simplification is as important as diversification.
  4. Do not sell your investments unless it meets one of the criteria flagged in when to sell your investments

I am quite hopeful, that the simple portfolio of just 5-6 funds can serve the most needs of an investor. As I am getting closer to my financial independence goal, I am helping more and more people to start their journey in more structured manner. I learned the process by hit & trial, started with zero inheritance and if I can do it, I am sure most of you can do it as well with little help & determination.

May this independence day brings you the aspiration to achieve your financial independence as well.

Happy Independence Day & Happy Investing!

Experienced Voices

Start early to take risk for gains!

“The biggest risk is not taking any risks. In a world that is changing really quickly, the only strategy that is guaranteed to fail is not taking risks.” – Mark Zukerberg

Independence day had an strong impact on my financial journey. When I had to work on this day in 2011, I decided to move on the Path to Financial Independence: Power of Investing. Today, I am sharing the experience of an escape artist Sriram Jayaraman, who had called it quits at the age of 49 by reaping the benefits of his investing. Sriram had an MCA in early 90’s and worked with firms like TCS, Mindtree etc. He had spend his career on-sites in USA/ Switzerland, which gave him exposure to not only investing in India but global markets. His more than two decades experience of investing gave him experience to not only witness the issues like Harshad Mehta Scam, Dot Com bubble etc. Here are his learnings:

Don’t be risk averse, Accept the possibility of being wrong at times. Investing in equities is always being fret with the risk of loss. One of the fear is that if you have picked a wrong investment, you might lose 100% but people don’t realize that a right pick can multiply. During the Ketan Parekh episode, one of the investment move from Rs 10 to 1,000 and then back to 0 in short time frame[Total Loss]. Though his another investment turned over 100x in 10 years so net-net still superb gain. Starting early gives you chance to ride on winners for long.

Give time to your investments! Sometimes we are really lucky, the investments we had made can double in short time frame. These are the cases, when you don’t want to abandon those investments. The positive returns can be multi-folds, and jumping off the ship to early is as bad as losing 100% of your investments. One of his investments in early 2000s in a conservative NBFC is still there and growing with profit booking over the last 2 decades.

Bucket your investments to maintain the balance! The investments need to be balanced as per goals. Even when you have the great opportunity to invest into a risky investment, never invest your short term goals money into a risky investment option. You always segregate the Emergency investments, short term investments in the debt instruments and long term investments in mix of equity & other assets.

Sriram Jayaraman after quitting his corporate career, now has been helping other investors in achieving their financial Independence. He is a SEBI registered Fee Only financial planner, more details on his website Arthagyan.