Fee-only advisor Avinash Luthria warns real investment returns will be zero!

Published: July 26, 2018 at 10:21 am

Last Updated on December 29, 2021 at 11:46 am

Avinash Luthria joins the freefincal list of SEBI registered fee-only financial advisors as its 12th member (yet another based in Bangalore) and to mark the occasion, in this guest post, he issues an important warning: “Real returns, (after inflation and tax), across one’s entire portfolio and across one’s lifetime, will be in the ballpark of zero per cent. This dramatically changes how one should invest and save”, and discusses simple solutions to handle this.

Avinash is also a member of Fee-only India: launch of a movement to serve investors and advisors and attended its second meeting in March 2018 at Hyderabad. If you wish to structure your money management goals with Avinash, you can contact him via his website: fiduciaries.in Now over to Avinash.


It’s probably useful to first get a very brief introduction out of the way: I am a Fee-Only Financial Planner & Investment Advisor ( http://fiduciaries.in ). Previously, I was a Partner and one of the five members of the founding team at a Top 5-10 independent Indian Private Equity & Venture Capital fund. In parallel with being a Private Equity investor, in my free-time on Sundays, I was a value-style direct-equity public market investor. I have an MBA (in Finance) from IIM Bangalore and have been a practitioner/student of finance for more than three decades.

Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥

Fee-only advisor Avinash Luthria warns real investment returns will be zero!


Since several readers might find it difficult to accept the assertion above (Zero-Real-Returns), let’s address that before moving on to the consequences of the assertion, which are more interesting. A quasi-proof of Zero-Real-Returns would involve too long a discussion about investment theory, history, and psychology, among other subjects. Fortunately, even if the forecast is not precise but is directionally correct, the consequences of Zero-Real-Returns that are mentioned below are still broadly correct. So, I will instead illustrate the assertion of Zero-Real-Returns in an over-simplified manner.

In the illustration below, I have tried to minimize jargon, but there are still a few bits of jargon that the reader cannot skip over: ‘Nominal Returns’ are the returns that we usually talk of in daily life. ‘Real Returns’ are equal to Nominal Returns minus inflation. Real Returns are more relevant, and hence it’s important to think in terms of Real Returns. In the illustration below, I have assumed inflation of 6% p.a. and in case of income tax, a marginal tax rate of 30%.

Let’s assume that the following investment avenues (that correspond with asset classes) have the following, relatively realistic, future average per annum long-term post-tax returns:

 Post-Tax Nominal Returns p.a.Post-Tax Real Returns p.a.
NSE NIFTY 50 Index fund


Residential Real Estate


Government of India 10-year constant maturity bond fund+7.3%+1.3%
Fixed Deposits at the highest-quality scheduled commercial banks+5.0%-1.0%
Simple Average of the above Returns



Let’s say that Achilles is 30 years old and decides to distribute his net worth equally between these four asset classes. He also maintains this asset allocation proportion for the rest of his life i.e. even when he is 75 years old. His average return over the rest of his life will be the simple average of the numbers mentioned above. So, his post-tax Nominal Returns will be 7.3% p.a. and his post-tax Real Returns will be 1.3% p.a.

This 1.3% p.a. Real Returns assumes that:

  • Achilles is always a very good investor who (a) never gets too greedy nor too fearful and (b) does not make any significant mistakes along the way, even when he is 75 years old and
  • Achilles does not have much bad luck such as a bad sequence-of-returns during retirement (over-simplistically, sequence-of-returns risk means that a bear market or stock market crash during retirement will have a disproportionately harmful impact)

It would be more realistic to conservatively provide for a few small mistakes and a small amount of bad luck. Doing so will reduce Achilles’ Real Returns below 1.3% p.a. It’s difficult to quantify whether the conservative estimate of his Real Returns is 0.8% p.a. or 0.3% p.a. Instead, we can just approximate that it will be in the ballpark of 0%. As mentioned earlier, it’s not important to be precisely correct in this forecast but to be directionally correct.

Now that we are done trudging through the math, we can focus on the consequences of the Zero-Real-Returns which are more interesting. These are few of the implications of the Zero-Real-Returns and once again, I have over-simplified:

  1. The corpus that you require to retire is 30 years of expenses:
    1. The assertion of Zero-Real-Returns allows you to simplify the calculation and treat inflation and investment returns as cancelling each other out. So, in this calculation approach, one can ignore both inflation and investment returns.
    2. If you and your spouse are 60 years old, you should have savings equal to 30 years of current expenses to be able to retire and survive retirement till the age of 90. This is a much larger amount than most people think.
  2. You should save half of your lifetime salary:
    1. If you and your spouse are 30 years old, then you have another 30 years of working lives ahead, and a total of 60 years of spending ahead of you. So, you should save an average of around 50% of your post-tax salary over the next 30 years. This is a much larger proportion of savings than what most people think.
    2. More typical scenarios are also relatively easy to calculate. Let’s assume that you and your spouse are 50 years old and you have already saved half of what you need to save for retirement. You are now trying to figure out the proportion of your post-tax salary, over the next decade, that you should save. This is simple enough to calculate mentally, but the first time you do this calculation, doing it on a piece of paper would minimize errors.
  3. Investment returns cannot compensate for inadequate savings:
    1. A commonly held view is that if someone does not save enough, then they can compensate for that by taking on more risk and generating higher investment returns. The reality is the opposite of that.
    2. Let’s say that an individual did not save enough and that they desperately need higher investment returns. Let’s also assume that, wishfully, they try to get higher investment returns by taking on a higher equity allocation. Eventually, after a bear market or stock market crash that persists for a long time, they will find that they cannot hold on to their equity allocation, and will be forced to sell and lock-in extremely poor returns.
    3. If an individual is desperately in need of high investment returns, then they will not be able to cope with risk and hence, are likely to generate lower returns.
  4. Even small costs kill:
    1. If an individual saves Rs 1 crore and they lose (a realistic) 0.6% of it each year in commissions to distributors of financial products such as mutual funds, then in 30 years, they would be left with the real equivalent of only Rs 83 lakhs. So even apparently small costs, cumulated over a long period of time, become large costs and have a huge impact.
    2. Even if one uses Direct Plans (i.e. Zero Commission Plans), all else being equal, focus on mutual fund fees and try to minimize them as much as possible.
    3. A good way to condition your mind to do this is to think of commissions/costs/ fees not in percentage points but in basis points (a basis point is one-hundredth of a percentage point).
    4. Further, every fee/cost above zero should add value to you for that cost to be justified. This is applicable even for annual costs of 0.1 percentage points i.e. 10 basis points.
  5. There is no room for unforced-errors / blunders:
    1. Saving 30 years of expenses by the age of 60 is a herculean task for most of us. Any major ‘unforced-errors’ (i.e. blunders) will make this almost impossible to achieve.
    2. Let’s assume that one invests 20% of one’s net worth in a risky real estate investment and that investment is a failure and the investment gets wiped out. Then during retirement, one will be forced to live with 20% less than what one had planned to.
    3. The primary way to mitigate this is to sufficiently diversify one’s investments.


An analogy may make it easier to remember the above rules-of-thumb: Let’s say that you suddenly find out that you have to drive from Mumbai to Pune for a critical meeting, which is four hours from now on a hot summer afternoon. The prudent approach is broadly as follows:

  • Check Google Maps to know how long it is likely to take (similar to calculating the correct amount that you have to save)
  • Excuse yourself from the ongoing less important meeting so that you can leave on time (similar to saving enough)
  • Just in case you left late, then resist the urge to drive above the speed limit to compensate for it (similar to investment returns cannot compensate for inadequate savings)
  • Don’t distract yourself by talking on the phone while driving (similar to even small costs kill)
  • Don’t try overtaking while driving through the tunnels. Also, even though you are short on time, make time to check the air pressure in the tyres (similar to there is no room for unforced-errors / blunders). As we all know, it’s better to reach late, than to not reach at all.

The views above are my views and do not necessarily reflect Pattu’s views. A huge thank you to Pattu, Ashal Jauhari, Melvin Joseph, Vikram Krishnamoorthy and Swapnil Kendhe for their warm welcome to the small set of Fee-Only Financial Planners & Investment Advisors. This warm welcome from the three Fee-Only Financial Planners mentioned here is the best illustration of Fee-Only Financial Planning being a profession rather than a business.


Do join me in welcoming Avinash to our fee-only fold.  If you wish to work with Avinash, you can contact him via his website: fiduciaries.in

Do share this article with your friends using the buttons below.

🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
Follow Freefincal on Google News
Follow Freefincal on Google News
Subscribe to the freefincal Youtube Channel. Subscribe button courtesy: Vecteezy.
Subscribe to the freefincal Youtube Channel.
Follow freefincal on WhatsApp Channel
Follow freefincal on WhatsApp
Podcast: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth! 
Listen to the Lets Get Rich with Pattu Podcast
Listen to the Let's Get Rich with Pattu Podcast
You can watch podcast episodes on the OfSpin Media Friends YouTube Channel.
Lets Get RICH With PATTU podcast on YouTube
Let's Get RICH With PATTU podcast on YouTube.

  • Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
  • Have a question? Subscribe to our newsletter using the form below.
  • Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.

Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!

About The Author

Pattabiraman editor freefincalDr 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.
Our new course!  Increase your income by getting people to pay for your skills! More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both the boy and girl-version covers of "Chinchu Gets a superpower".
Most investor problems can be traced to a lack of informed decision-making. We made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So, in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it, as well as teaching him several key ideas of decision-making and money management, is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
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 their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)