asset allocation is the problem NOT ALPHA
Our monthly income is ₹2 lakhs (post tax, no Emi) and monthly expenses are to the tune of ₹60k.
We have 18 lakhs in shares and 4 lakhs in PPF. We have 12lakhs in savings account.
We are doing a SIP in elss tax saver growth fund direct plan of ₹5000(45K invested). We have no loans.I am 34 years old and my husband is 37 years old and we are employed with a private MNC bank and have a 2.5years old daughter.
We want to invest and save for my daughter’s schooling, college education, marriage,and our retirement. We also want to buy a villa in 8 years with some lumpsum down payment and a vacation during the same time period. We have a medium risk appetite. Please help
One of the emails that I received. I am clear that I do not handle such queries – I sometimes forward it to an Ifa and he/she may not may not communicate, but I am a blogger not your personal financial adviser.
Do you see the problem as I see it?
This couple has Rs. 1,40,000 a month surplus and out of that they are investing Rs. 5000 a month in equities. How will alpha or Beta matter? Even a 29% p.a return for the next 23 years will do nothing for their portfolio. However if they started putting away Rs. 125,000 per month in an equity fund and they get `12% CAGR over the next 23 years, they will have about Rs. 17 crores. Not a bad sum is it?
Clearly this problem is widespread in India. People who can invest Rs. 125,000 a month are investing Rs. 5000. Asset allocation has to be towards assets which give Inflation+4% p.a. return and not assets which give you Inflation-1% like PPF or Inflation -3% like classic endowment insurance. It is your ability to save well (saving 70% of the take home salary is very good). However if you do not INVEST it in equities, you are not doing something smart.
Invest in a combination of mutual funds, etf, and of course keep your PPF and elss contribution going. However, if you want to fund your children’s education, buy a villa, take vacations, plan for retirement, etc. you will have to do a huge SIP (BY YOUR standards) and then sit through the gut wrenching years. I am suggesting an aggressive equity portfolio to start with. After say 10 years I might move to a series of debt funds / etc. as I will be nearer to my goals like son’s education, etc.
madhur25
But they have 18 lakhs in shares. They might be investing directly into shares every month instead of SIP.
Anil
Madhur, two things :
1. Couple saving 1.4lakh per month and younger one being 34 in no way account for money. In that sense neither saving or pf – where is the money? They should have 18 lakh in an year
2. Subra is referring to what they should do in future so what they did so far has little to do there
Pradeep
I think its very hard for anybody to start putting 1.25 Lac Rs right away in equity MFs. There is always going to be a jittery feeling about the ups and downs of the market. Its better to start with 50-50 or 60-40 allocation towards equity and when they see dips in the market they can put more money in.
Also 18 Lacs in share is not a small investment by any means.
Krish
‘sit through the gut wrenching years’ should not only be post investing for good returns and also prior investing to get the right entry point.
Sudha
For a lot of us (middle class upbringing, double income), paying off the housing loan is priority. When I tell people, 8% housing loan is the cheapest funds. Even if your MFs earned 8%, you would still be in profit. They look at me like I am crazy. So maybe in this case, they paid off their housing loans aggressively and are now focusing on saving+investment