Last Updated on February 12, 2022 at 6:12 pm
I recently received this email: “I am a 41-year-old salaried single lady, and stumbled upon your blog site recently, in my quest to effective portfolio management. I have realised that I have made lots of financial mistakes to date, like not investing enough in mutual funds or PPF, too much diversification in the stock portfolio, not choosing the right stocks. Most of your articles are about young investors, can you please guide me to the materials which will help my situation.
First of all, there is a good reason why most personal finance literature is about young investors. It is quite easy to suggest generic actions to someone whose net worth is next to zero. They are yet to make the mistakes we older folk have done.
Second, there is also a good reason why it is hard to articles for older investors. And it is the same reason as above. They have been saving or investing for about a decade or so, and the clutter and mistakes have piled up. It is not possible to write generic decluttering articles.
So anyone above the age of 35 reading this and feel the same way as Ms X here should immediately consult a SEBI registered fee-only financial advisor. This link will take you to a list of such advisors curated by me since 2014.
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Hundreds of our readers are working with these advisors and are quite satisfied with the fee-only services and how their financial lives have changed. See: 685 investors rate their experience with SEBI registered fee-only advisors.
If you are new to our website, a SEBI registered fee-only advisor creates a comprehensive, holistic financial plan for you without receiving any commissions or incentives from any kind of product manufacturers like mutual fund houses or insurance companies. Hence the term “fee-only”. The only way they get compensated is by your fee. So this guarantees unbiased advice free from conflict of interest.
So I have impressed Ms X about the urgency of consulting a SEBI registered fee-only financial planner, and she has agreed to so. Now to understand the onerous task before her, I requested some details, and here they are.
1. My monthly expense is around 60,000, which includes home loan EMI and insurance premiums
2. My current asset allocation is like this:
- Shares: 13%
- Mutual Fund: 5%
- ULIP: 20%
- EPF: 18%
- Land: 18%
- Fixed & Savings deposits: 26%
3. My short term goals are:
- Buying a small car – 8 lakhs
- Buying a bigger house – I have not been able to fix a budget for this seems unachievable given house prices in Bangalore. I wish to fund this partially by selling my current flat, which is 1 BHK, for which I am paying an EMI, but again I am a bit confused if I should keep this for rental income.
I think you are in fairly good shape financially. I think you should be able to achieve your short-term goals successfully, but I would urge you to ensure that you are investing enough for financial independence at age 55 at all times.
Existing investments: The fee-only advisor will sort this out for you. Advice on which to exit (esp. the ULIPs), which to keep, where to invest and realign the asset allocation for your primary goal – financial independence.
The car: Please consider buying this down cash if possible. If you wish to buy with a loan, do so only if the investments for your primary goal are not affected. This would apply to any big or small-ticket purchases to be made in future as well.
The bigger house: You have indicated that you wish to partially fund this with your current house. This would mean a second home loan EMI. Assuming you do not run both EMIs in parallel, the same suggestion as above applies: ensure you do not reduce investments for your primary goal.
Manging finances single-handedly: This is not something Ms X had asked, but since there was a recent discussion on this topic in the Facebook group Asan Ideas for Wealth, I thought a few general comments would not be out of place. These may not be relevant for Ms X. I would recommend the following for any living alone:
- Develop a support system. A trusted friend or neighbour is essential in case of emergencies. Keep a good chunk of cash at home for the same reason and tell them about it. All relevant contacts and dues dates (e.g. car insurance) should be prominently plastered at home and also carried in person.
- Develop a relationship with a good family doctor.
- Buy yourself a big fat insurance policy. Say a base policy for 25-35 lakhs and a super top for about one crore. Give a copy of your policy document to your friends, and SEBI registered fee-only advisor. Your friends should also be able to contact your advisor for any clarification.
- Update any changes in your lifestyle (+/-) to your advisor.
- If you are a keen traveller, work out a plan with your advisor to have enough travel money every year or every other year etc.
- Food for thought: What is your lifestyle going to be after you quit your job? Do you plan to travel? Do you really need a bigger home? How does the prospect of buying a retirement villa with all essential services sound to you? What do you plan to do your net worth after your time? The general dictum is not to buy term life insurance if there are no dependents. However, you can consider buying one if you have persons in the extended family or even a charitable organisation you can nominate to receive the monies. The fee-only advisor will guide you in this regard.
- Consider writing a living will: This is a directive for health care professionals if we become too sick. Read more: What is a living will, why is it important, how to make one & how it can help our loved ones. A lawyer will be necessary.
- Write a (normal) will also to distribute your net worth after you have passed. A fee-only advisor will also help in this regard.
Financial independence: Assuming your annual expenses are about Rs. 4,00,000 (excluding the EMI), let me punch this into the robo advisory template to see what it coughs up. Your existing net worth will make a big difference to the calculation, but since this is not known (I did not ask for it), I will offer some assumptions and projections. Please note these may differ significantly from the calculations or recommendations of the SEBI registered fee-only advisor.
- Inflation before retirement (%) 7
- The assumed life expectancy: 90 (Years in retirement: 35)
- Inflation during retirement (%) 6
- Years to retirement 14
- Monthly expenses in the first year of retirement Rs. 85,951
- Corpus required for retirement: Rs. 2.9 Crores.
- Assuming no present net worth (!), the monthly investment required is Rs. 51,000 increasing each year at the rate of 10%.
- If I assume, the 18% exposure in EPF is about Rs. 15 lakhs, then proportionately including equity exposure from ULIPs and mutual funds, the FDs and excluding reals estate, the monthly investment required is only Rs. 15,000 increasing each year at the rate of 10%. This includes mandatory EPF contributions. Even if the net worth assumed is wrong, I think Ms X should comfortably invest for her retirement if the EMI burden is not too high.
Pre-retirement equity and fixed income allocation as a function of age suggested by the freefincal robo advisory template are shown below.
In summary, Ms X is in fairly good financial shape. She will need to immediately consult a fee-only advisor to sort out her existing investments, particularly the ULIPs and ensure her short-term goals do not interfere with the primary goal of financial independence. Those leading single lives as her must also build a strong support system with friends and relatives and consider how they wish to spend the evening of their lives.
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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 ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
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