How mutual funds helped me reach financial independence

Published: December 16, 2021 at 7:00 am

In this edition of the reader story, we start a new series – mutual fund investment journeys. We requested members of the Facebook group Asan Ideas for Wealth with more than ten years of mutual fund investing experience to share their journey. This is the first episode from an investor who prefers anonymity. Let us call him Mr Dagwood.

Mr Dagwood explains how disciplined investing in mutual funds helped him create a corpus worth 33 times his current annual expenses (typically referred to as 33x). This means that if he were to retire today, he can live off his corpus for the next 33 years, provided his portfolio grows at a rate equal to that of inflation (zero real return). A value of 30x is usually considered the threshold of financial independence (although a higher corpus is necessary before we can quit regular employment). See: Early Retirement in India -How to Retire Early Safely: Free E-book

Please share your experience with fellow investors and help the younger generation: We invite readers to share either mutual fund investing experiences or stock investing experiences or their goal-based investing journey at freefincal. This will inspire fellow investors and reiterate a basic rule of life- we all make mistakes and learn from them to become better.

There is no specific format or word limit for such articles. Just write your investing story as it happens without sounding preachy. You don’t need to worry about grammar or language expertise. Your story can be published anonymously. If you are interested, write to us at freefincal [AT] gmail [dot ] com.

Check out the full archive of reader stories. Some recent articles are also linked below.

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Opinions published in reader stories need not represent the views of freefincal or its editors. We must appreciate multiple solutions to the money management puzzle and empathise with diverse views. Articles are typically not checked for grammar unless necessary to convey the right meaning to preserve the tone and emotions of the writers. Now over to Mr Dagwood.

I want to share my mutual fund journey since 2008. It was not disciplined at the start but eventually reached a good level.

I started (or found myself) investing in mutual funds in 2007-2008 thanks to my LIC agent, who had also started selling mutual funds. He managed to convince me that mutual funds gave good returns. I did not have any idea about mutual funds at the time.

I invested in around 5-8 equity mutual funds based on his suggestions. I think the total amount was close to 1.5 lakhs. And then, the market crash happened, and I got a first-hand taste of risk in mutual funds.

Thanks to my family motto of letting things settle for a while, I did not panic and sell those for a loss. I did not need that money for the time being and let those mutual funds continue. Two of the funds were close-ended for ten years, so I had to keep them for the duration.

Eventually, after 5-10 years, most of those funds recovered and even gave back good returns. Some even doubled the money invested. And I learned a lesson to get more knowledge before investing in any such instruments.

I started getting interested to learn about mutual funds (and other investments) somewhere around 2012. I don’t remember exactly why, but I know I was motivated by the journey of Mr Money Moustache and Early Retirement Extreme for financial freedom and early retirement.

I read related books/resources like BogleHead, Permanent Portfolio, and Rat Race to Freedom. I liked the concept of the Permanent Portfolio and started investing in mutual funds using a similar concept.

Every month I invested 25% each in an equity fund, debt (gilt) fund, gold fund, and cash (short term debt) fund. I went onsite, and I managed to make some good savings. I kept investing most of it in the Permanent Portfolio funds.

Editor’s note: Onsite opportunities or higher income alone cannot make a person rich or financially independent. Disciplined investing (not saving) and staying calm during troubled times is the key.

I joined AIFW somewhere in 2014-15. It was a good opportunity to learn about Indian investing and how it differed from the American way that was mostly the reference available on the Internet and in books.

Somewhere around that time, I shifted from the Permanent Portfolio to the typical BogleHead 60:40 equity/debt portfolio. I started using the turnkey solution I read in freefincal for the equity portion. For the debt, I continued using a short-term debt fund.

I continued saving and investing consistently almost every month. My savings rate would be somewhere around 50-75% of my income every month.

I believe it is this discipline that has now allowed me to reach a networth of around 33x of my expenses today.

I recently joined the Goal-based portfolio management course by freefincal and started following the step down from the 60:40 allocation every year.

I now invest in an index fund for the equity portion. I continue using a short-term debt fund for the debt portion.

I have four mutual funds in my portfolio and will continue with the same. Eventually, I plan to reduce them to just 2-3 mutual funds.

My only goal with these funds is for retirement. I don’t plan to retire. I want to build a business that will replace my job income.

I am thinking of stopping further investments in these funds as they should be sufficient for retirement. And continue new investments in “safer” instruments or funds because I don’t need to take the risk.

Reader stories published earlier

As regular readers may know, we publish a personal financial audit each December – this is the 2020 edition: How my retirement portfolio performed in 2020.  The 2021 edition will be published in a few days. We asked regular readers to share how they review their investments and track financial goals.

These published audits have had a compounding effect on readers.  If you would like to contribute to the DIY community in this manner, send your audits to freefincal AT Gmail. They could be published anonymously if you so desire.

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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.
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