Last Updated on December 29, 2021 at 6:01 pm
In the seventh edition of personal finance audits by readers, we meet 30-year old Rohit whose early struggles led him, to start investing early in a goal-based manner.
As regular readers may be aware, we publish a personal financial audit each December – this is the 2020 edition: How my retirement portfolio performed in 2020. This time, we asked regular readers to share how they review their investments and track financial goals.
- First audit: How Suhas tracks his MF investments and reviews financial goals.
- Second audit: How Avadhoot Joshi evaluates his investment portfolio.
- Third audit: How a single mom is on track to financial freedom
- Fourth audit: How Gowtham started goal-based investing & took control of his money
- Fifth audit: Why my financial independence & early retirement plans were postponed by four years
- Sixth Audit: How Abhisek funded his marriage & is on track to financial freedom.
- Seventh audit: The present one.
- 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.
Over to Rohit: Excited to write my portfolio audit. Thanks to Pattu sir for the opportunity. I am a software engineer by profession, and my hobbies are programming, reading (fiction to learn life better, non-fiction to understand the business better), watching movies (and TV series, still favour movies over TV series), sports (play cricket, football and watch the two + tennis), and personal finance and investing.
I was lucky to start a little early with my investment journey. In hindsight, I feel that this was driven mostly by the following reasons:
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Lower middle-class childhood, where we struggled a lot with cash flow and all emergencies were handled by borrowing money.
Learnings from repayment of education loan for my B. Tech first, followed by contributing to sisters marriage and brothers education
Handling a medical emergency for my father early in my career, with an expense of 1.5 lakhs
In Pattu sir’s words, my rear end has almost always been on fire. And I think the only fire extinguisher that would have worked was and is, above-average income and money management skills.
Thanks to a lot of luck, hard work, and God’s grace, I started with a decent income and almost immediately started with repayment towards my education loan. A couple of years later (January 2016), when the loan neared its close, started my investing journey.
Few things I did right since the beginning:
Started with direct plans of mutual funds, never had any regular plans.
Avoided ULIPs and LIC policies
Even though I started in late 2015-early 2016, mid/small caps were never a big part of the portfolio, even though they were all the rage at the time. I remember learning from office colleagues when DSP Micro Cap (now DSP Small Cap) was there favourite.
I think these little things, along with stumbling upon Freefincal and then AIFW, helped me avoid a lot of trouble as I went ahead in my journey. Looking back, it’s almost unbelievable that I did these right.
Insurance
Health Insurance: I have HDFC Ergo Optima Restore (previously Apollo Munich Optima Restore) with a base cover of 10 lakhs (5 years old, thankfully no claims so far). And an HDFC Medisure Super Top policy with a cover of 25 lakhs.
I also have an employer-provided cover of 5 lakhs. Since parents are added in this policy with pre-existing diseases covered, I plan to use it for them. This came in handy a couple of months back when father caught an infection (non-covid) and 7-day treatment cost nearly 2 lakhs. Insurance paid 1.7 lakhs, and I paid 30k.
Term Insurance: I have a 1 crore Term Insurance from HDFC which was bought 5 years ago when I used to think ‘Oh, 1 crore is such a big amount’. This needs a revisit.
Emergency Fund: I have 6 months worth of emergency expenses in Savings Account + Liquid funds. Since I have decent amounts in debt funds available for access, I don’t overthink this.
My Portfolio
Equity: Equity exposure is via active mutual funds. I have recently started building a stock portfolio for myself after getting inspired by Pattu and Subra’s efforts (I find Subra’s YouTube videos on direct equity to be genuine and practical. Please take a look if you have not already. I assume that since you are reading this on Freefincal, you already watch Pattu sir’s videos 🙂 )
Debt: Debt exposure is with debt funds (liquid, money market and low duration categories as of now) and PPF. Debt funds have the largest proportion in my debt portfolio, so I have a decently sized liquid debt allocation as of now. EPF allocation is minimal as I skipped EPF contributions for the first 3 years when provided the choice, and for the past 3.5 years, have been contributing Rs 1800 per month (EPF min contribution) towards it.
Goals
- Decided asset allocation for Long term goals – 50:50 (equity:debt)
- Decided asset allocation for short term goals – 0:100 (equity:debt)
- For short term goals, I follow 100% debt allocation.
Marriage
Yes, I am unmarried, reaching 30 now and think it’s time to pay heed to MacKenzie MacHale’s advice to Jim Harper (“Gather ye rosebuds while ye may”, The Newsroom)
Most of the money is in place for this goal and will supplement the rest of it over the next 3 months from salary.
Car
I don’t own a car. Will buy a car for my parents in next 1 year. Have reached 50% of the target amount. Since this is a flexible goal, I will increasingly build a corpus over the next few months. Will be able to supplement with debt fund holdings if required.
Long Term Goals
Retirement
For this long term goal, I have decided to use 50:50 (equity: debt) asset allocation.
This was 36:64 till Feb 2020, but 55:45 in Dec 2020, thanks to diverting money from debt funds and cash to equity over the months of Feb-September.
I have decided not to rebalance it, as I will likely be supplementing my short term goals over the next few months.
Will this allocation I am at ~10X (X being annual expenses for me + my parents). Target is 35X as early as possible. In this runup in equity markets, I have started to feel that the accumulated equity portfolio has become a contributor to corpus creation.
The equity portion of long term goal is almost equally invested in PPFAS, Axis, Mirae and Invesco AMC’s funds. I am happy with portfolio performance so far and don’t plan to move to index funds. But next time I would consider shuffling funds due to underperformance, I will likely move to index funds.
I have also started building a direct stock portfolio 4 months back, which is 1.5% of today’s total equity portfolio. Have decided a fixed amount for the direct portfolio and will continue to buy stocks in the portfolio, which can be accommodated in that amount, keeping the position sizing as close to decided as possible.
The annual (FY) investment made into mutual funds is schematically shown below, along with the direct equity portfolio.
The long-term debt portion is invested in Debt funds (money market and low duration) + PPF + Small amount in EPF.
Since debt funds form a big chunk of the portfolio, I follow a simple evaluation system (familiarity, brand, allocation % etc.) and regular monthly monitoring to take actions as and when needed. For example, I held Axis Treasury Advantage when the DHFL saga began.
The fund had ~7% exposure to Zero-Coupon Bonds of DHFL bonds. I laughed at myself and moved money from the fund (Nothing happened though, Axis Treasury sold the bond (or transferred within AMC), but some Axis funds took a hit in the NAV. I didn’t know about inter-scheme transfer at the time; otherwise, I would have researched a little bit). Same with Franklin Ultra Short Term – I only remained invested in the fund for 3 months, as I could not come up with a system to review it. In hindsight, this was a good decision.
Liabilities
I have no active loans. I use credit cards wherever possible, I have 3, and pay bills on time. With no EPF, NPS and home loan, taxes are my biggest liabilities 🙂
That said, I am aware that I am at a stage where a lot will likely change in very less time. As Morgan Housel would say, ‘ Reasonable optimist’ is how I would like to approach the changes to come.
Plans for 2021
Revisit Super Top Up policy: I am actually not comfortable with low cover (25 lakhs) of HDFC Super Top Up, but this is the max cover they provide. Since this is only 1 year old, I may move to a different insurer this year for Super Top Up.
Build up medical corpus: For parents (and myself), and do it fast. I have exhausted 1.7 lakhs out of 5 lakhs for parents, 3.3 lakhs is grossly insufficient. On the same line, I will try to complete buying health insurance for my parents. I have done my research, but will likely take professional help for this.
Reach target corpus: For short term goals.
For long term goal, continue to invest in equity and debt as per desired asset location. I will gradually build my stock portfolio, which I have found to be a great learning experience.
Revisit debt allocation: So far, I have taken a conservative approach to build my debt fund portfolio. I feel that for long term goals, and with growing debt fund corpus, Banking and PSU, Short Duration and Gilt debt funds can find a place in the portfolio. May also consider increased EPF contribution. Not convinced of the role of NPS yet, so will likely avoid it.
Be grateful
Keep re-reading ‘The Financial Arrow of Time’ on freefincal: “Every moment wasted, not being in control of your cash flow, not investing enough, not taking action, is lost forever. The magic of compounding diminishes slowly and relentlessly. The past is prologue!” This is my all-time favourite post on freefincal. I have read this post countless times, and it inspires me and springs me into action every time I read it.
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