Last Updated on February 14, 2016 at 12:31 pm
This is an analysis of my mutual fund investing journey in particular, the growth of my retirement corpus. The aim of this post is only to share my insights. The main reason I did this analysis is to explore the possibility of creating a tool to automate this analysis.
My first ever equity investment was on 19th June 2008. The markets were about to crash, but I had no idea about all that simply because I was not looking.
The blue line is my normalized retirement corpus (equity portion alone). Starting from a value of ‘1’ on 19th June 2008, it is currently now ‘1830’.
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Since I had extremely small amounts of equity exposure up to early 2010, the recovery from the 2008 crash did very little to bolster my folio.
When you look at the data as shown above, plotted with BSE 500, it gives the impression that the folio has almost been immune to market movements and has gone up regardless!
The devil lies in the details!
This is my total investments plotted along with the corpus. My investment was ‘1’ on 19th June 2008 and has increased to ‘1429’.
So much of the corpus growth has been due to investments which shot up rapidly in 2010.
Now gain or loss has been added. Notice that the folio was in red for more than 5Y after I started investing. The gains started only in Aug 2013 when the market started to move up.
The net XIRR of this folio is 11.1% (12 Feb 2016).
Personally, I am at peace with this. All I have done is to put away money into the market each month. Close to 8 years of doing this has taken me to within 7-8 years of (notional) financial freedom: Retirement Planning: My Story So Far
So I see no reason to do anything different. Freefincal tools have helped me understand risk more than anything else.
My takeaways from this journey:
- Market returns are highly irregular. The corpus gain shot up from zero to 600 in a little more than a year.
- The main reason for this gain: systematic increase of capital in the market during the lean period. To me, this is the secret behind wealth creation with systematic investing.
- Keep your head down, ignore the noise and constantly deploy money into the markets.
- All the gains made so far can evaporate in this ‘crash’. However, that is because of NAV movement, not because of decrease in mutual fund units.
- My technical retirement is 24 years away. So even if I do miss my 7/8Y target, I do not mind too much.
- People talk about a poor show in 2016 and then markets picking up. If that is true (rarely is), then I don’t think my target will be affected.
The main reason I write this is to illustrate the point that one has to wait patiently for gains to arrive. Some say it is ‘stupid’ to do this – active management is essential.
I believe active management is essential too. I have actively analysed my portfolio and I have made an active choice that my dull and boring systematic monthly investments are going to continue.
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About The Author
Dr M Pattabiraman giving a lecture
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 14 years of experience publishing news analysis, research and financial product development. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free, AUM-independent investment advice.
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Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (Published by CNBC TV18) for DIY investors.
This book helps you ask the right questions and find the right answers. It also includes nine online calculators to create custom solutions.
(2) Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want.
This book helps young earners get the basics right from the start! It will also help you travel to exotic places at a low cost!
(3) Chinchu Gets a Superpower! for kids.
Both the boy and girl versions of "Chinchu Gets a Superpower".
Most investor problems stem from a lack of poor decision-making. We made bad decisions and money mistakes when we started earning, and we spent years undoing them. Why should our children go through the same pain?
What is this book about? As parents, what if we had to groom one ability in our children that matters not only for money management and investing but for every aspect of life? My answer: Sound decision-making. So, in this book, we meet Chinchu, who is about to turn 10. The story follows what he wants for his birthday and how his parents plan it, while also teaching him key ideas about decision-making and money management.
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Feedback from a young reader after reading Chinchu Gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from a young age. The importance of money management and decision-making based on their wants and needs. Very nicely written in simple terms. - Arun.
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