Retirement Advice: Completely wrong!
A lot of qualified planners have given the following advice to a few people who have written in to me..let me summarize a few of them for you:
1. Equity is risky, it has no place in your portfolio. I write so much about equity, I am sure my readers know how stupid this line is. Do I need to elaborate? Just read my blog..and you will know about the risk of inflation.
2. Equity returns are not guaranteed, so it is risky: This is perhaps worse than the first point, so I will ignore this too. Just a little tear for the client and his planner.
3. Buy a big house and you can sell it and use it as a retirement kitty: You need to be extremely lucky to get good returns on a single property portfolio. Almost impossible. If at the time of your retirement the only asset you have is a piece of real estate in which you are living, man you should sack and sue your advisor. Or shoot yourself for listening to such bad advice.
4. You will be able to withdraw 9% from your portfolio (planner’s logic – senior citizen’s account pays that much, dude): Complete bull. You should be lucky if you can withdraw 4% of your portfolio if it has a healthy mix of equity and debt – and this amount may be completely insufficient by the time you are 70. Inflation adjusted withdrawal, post tax making a 9% assumption is a financial crime. Shoot your planner, guns are available.
5. At retirement all your money should be in debt instruments: OMG I have heard this too many times. Even after you retire you will have to battle with inflation. Not more than 50% of your LIQUID net-worth should be in debt oriented instruments. At the age of 80 you may be able to move to 90% in debt, not earlier…and if you have a younger spouse – at her age of 80.
6. You can start saving for retirement after you have accumulated money for your daughter’s marriage: I seriously debated whether you should shoot, poison or throw your planner in front of Shathabdhi for such advice. I would do all 3. The worst thing you can do is delay the start of investing for retirement. One girl I know has started at the age of 24years – she is now 32 and is going strong with her SIP in equity funds. Please remember the title of my book ‘Retire Rich: Invest Rs. 40 a day’ – this is true only for 24 year olds doing a SIP in an equity fund and increasing it by 10% every year. Time is your best friend when you are young. If you do not start young it becomes your enemy soon. At age 40 you will need to do a SIP of about 55,000 per month if you did not do 40 at age 24.
Muthu
I See a strong ‘killer’ instinct in today’s post:-)
subra
No, this is MURDER instinct…but such poor, and appallingly bad advise makes me wonder – How can these guys call themselves professionals? and some of them have passed one exam too 🙂 L O L…one of them comes regularly on the idiot box too 🙂
SAM
@Muthu – I agree. 🙂
@Subra – This was seriously a early morning/warning wake up call for me!
Muthu
People are people and they will tell what they would like to tell. And the gentlemen would want to hear what they like to hear. Though belated, I’ve come to conclusion that in general it is very difficult to change people- either advisors or investors. If some change for better, it is good for them. Otherwise watching this whole damn process can be amusing.
Muthu
Just one more thing. If it is possible for you, can you write about stock picking? No tips or specific buy recommendations. But based on your experience, how an investor who wants to invest in direct equity should approach the markets, the key things he should look for while analysing a company etc.
subra
meeting the management – either directly or training one of the office kids / research kids to do it is INTEGRAL to the whole process. It is not for retail to do. For e.g. I know you hold IDFC, but I will not touch it, ever. Same feeling for the Chennai based Sriram Transport finance. I hold tons of Murugappa group shares and TVS Sundaram group. NO OTHER CHENNAI stocks. No Hyderabad, no Delhi…call it geographic bias? I have stuck to a small portfolio – so completely, completely incompetent to tell the retail player who needs 3 stocks a day. I buy 2 stocks a YEAR – max. So incompetent once again 🙂
Sreekant
Bad advice in any area is criminal as it affects somebody’s future financial status. But more so with retirement because by the time the person realizes that he has been dished poor advice, it is too late in his life to undo the damage. And he has to live and die with it.
Shows the crying need for basic financial literacy – inflation, real returns, compounding etc. At least an awareness of these basics would make the advice recipient ask the right questions. As Muthu says, it is very difficult to change people, irrespective of which side of the table they sit.
anon
Subrabhai
First– excellent post.
Second–I remember a post you’d written, laced line-by-line with sarcasam, FD is a great investment etc etc.
I’ve only tried to speak to one or two people, but inflation and post tax returns is something that does not percolate brains.
Whenever I do decide to retire, my dividends will cover expenses and the rest is to travel the world.
Ganpati bappa willing. 🙂
Muthu
I do not want to comment on retail investor who wants 3 stocks a day. I can only speak about myself. I never hold more than dozen shares, infact mostly less.
Murugappa or IDFC stock doesn’t care as to who owns it. That’s why I said that there is no need to discuss any individual stock but talk more about approach and what one needs to look for in a company.
I decide stocks with my own analysis and I definitely do not mind going wrong. My decision is not based on whether some one else would touch it or otherwise. If I’m going to get influenced by such comments; I should not be picking stocks directly.
Of course, you’ve every right to decide as to what you want to write. I definitely feel good stock picking is possible for serious retail investors as well, which you seem to feel otherwise.