Crash destroyed my 12 year equity MF gains but this is time to invest more!

Published: May 14, 2020 at 11:18 am

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Last week I had reported that the annualized return (XIRR) of all my equity MF transactions tagged to retirement planning goal (or financial freedom) dropped from 11.6% in Dec 2019 to 2.75% after the crash.  Some readers were either disheartened about this or twisted the result to point out equity investing is risky. In this article, I trace the growth of my MF retirement portfolio along with an imaginary investment in Nifty to point out why this is the time to be investing in equity although most of my gains were wiped out by the crash.

Context is key. Like we have seen several times before, equity will always be volatile no matter how long we stay invested (the AMCs and even the NSE wants us to think otherwise, but we know why.

So returns will be volatile too with huge swings. This will never change. What can change is our plan to handle this. My point in articles such as these – 15-year Nifty SIP returns crash to 8% (51% reduction since 2014) – has always been the same.

An unmanaged equity investment will just go where the market takes it and our fate depends on luck. Proper financial goal planning with a clear risk reduction strategy before and after retirement is essential.

I had mentioned in the 2.75% post that I have been able to cling on to my financially independent status thanks to a cash component and that annualised return does not matter much – only what the portfolio is worth. That is, how long one can live off off it with a reasonable return and inflation assumption.

Many readers/viewers (on Youtube) were appalled about the low return. Some claimed I had made a mistake, some claimed I did not account for rebalancing. In fact, if you see the graphs below, you might ask, “it seems like you have left the portfolio to luck. Where is the plan and active management you keep talking about?”

Again context matters. With great difficulty, I managed to keep my equity portfolio close to 60%. My NPS works like a massive step-up SIP increasing with every DA, every increment, pay commission, promotion etc.

I have never seen (in spite of the big gains seen below), the equity portion go beyond 60%. So I never had to rebalance so far. Besides, my retirement is still 19 years away so I have never had the need to vary asset allocation as well. So yes, so far the portfolio has just swayed with the market.

In hindsight, you might think, “if only you had booked profit when you had 60%-80% gains (see below)”. That would have destroyed my portfolio.

This is the normalised growth of the equity MF retirement portfolio (direct equity and NPS not included) with the total investment and an imaginary investment in Nifty 50 – same dates, same amounts since June 2008.

Growth of retirement portfolio (normalized) along with imaginary investment in Nifty 50 and total investment
Growth of retirement portfolio (normalized) along with imaginary investment in Nifty 50 and total investment

Note, an expense ratio is not included for the Nifty portfolio. Notice the crash nearly wiped out all my gains. This is a close-up since Jan 2020.

Close up of Growth of retirement portfolio (normalised) along with imaginary investment in Nifty 50 and total investment since 1st Jan 2020
Close up of Growth of retirement portfolio (normalised) along with imaginary investment in Nifty 50 and total investment since 1st Jan 2020

It is both immature and childish to argue if active funds (my portfolio) or Nifty 50 investment is better. This kind of past performance is not relevant to whether you choose active funds or passive funds. This should be the only reason:

Finally, the absolute gain or loss is shown below. The crash has pushed me back top Aug 2013 in terms of gains.

Absolute gain or loss of retirement portfolio (normalized) and an imaginary investment in Nifty 50
Absolute gain or loss of retirement portfolio (normalized) and an imaginary investment in Nifty 50

I had increased my investment significantly during 2011-13 (accidentally) and it changed my life when the gain finally came. Now I am almost back to that stage. We are on the threshold of another prolonged sideways market.

This is not the time to be disillusioned and run away from equity. This is the time for the big push into equity (with plan limits, assuming there is one!). The cycle will reverse and the gains will be back again. It will not take long for that 2.75% to go back to double-digits.

That is optimism or hope, yes, but only after all the personal considerations are addressed and factored in the investment plan.  Please create a custom plan for yourself and start investing in the right asset classes, the right asset allocation at the right time.


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About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com
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