Last Updated on October 19, 2021 at 8:18 am
In this edition of the reader story, we meet Vasu, who is two years away from financial independence. He explains his approach to personal finance: “Own what you know, Loan (to) who you know” to maximize risk-adjusted rewards or minimize reward-adjusted risks.
About this series: I am grateful to readers for sharing intimate details about their financial lives for the benefit of readers. This is the 20th such reader audit. Previous editions are linked at the bottom of this article.
Opinions published in reader stories need not represent the views of freefincal or its editors. We must appreciate that there are multiple solutions to the money management puzzle and be empathetic to diverse views.
If you would like to contribute to the DIY community in this manner, send your audits to freefincal AT Gmail. They can be published anonymously if you so desire.
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Please note: We welcome such articles from young earners who have just started their investing journey (this edition is a good example. Also see, for example, audits by Suhas and Avadhoot linked below). Now over to Vasu.
Unknowingly all of us have followed a certain style to saving, investing, and managing our money, and I am no different. For over the last five years, I have been trying to make a conscious effort to improve and refine my finance knowledge to make “self-informed” decisions.
I am 44 years and employed with a large global tech major for close to two decades now. I aim to achieve financial independence with an iota of Buffet (yes, it is not a typo, I meant an iota of Mr Buffet).
Given the current spend rate, inflation, forecasted milestones of my two kids’ education and marriage (over the next 5-15 years), I believe I am a couple of years away from achieving it.
Following Mr Pattu and Mr PV Subramanyam has had an immense influence on my thinking about money, retirement, and goal-based investing with asset allocation strategies.
Here, I wanted to share my approach to growing the money with a balanced view of risk and rewards. I called it “Own what you know, Loan who you know”. Let me explain, splitting this into two.
Own what you know – for Equity Portion: All of us understand certain things more than others or certain other things. E.g. my company, my profession, my industry, my country.
This should naturally give us an advantage & arbitrage of wisdom to evaluate them as investment opportunities. E.g. can I invest in my company shares ?, can I explore an alternative career or passive income in the area of my profession ?, can I invest in a thematic fund of my industry?
Can I invest in an index fund of my country or a market I understand intimately? For example, from an early stage of my career, I availed Employee Stock Purchase Plan (up to 10% of monthly salary) to accumulate company shares.
Listed on NYSE, this has resulted in a steady compounding due to stock price appreciation and rupee depreciation over the years.
There were occasional RSU (Restricted Stock Unit) allocations that further helped accumulation and compounding. This now forms a significant portion of my portfolio. While I have not invested in technology thematic MFs, I chose flexi cap funds that have more weightage to global tech companies and well run Indian tech companies. I also plan to further invest in NIFTY index funds to strengthen my core portfolio in large cap space.
Loan (to) who you know – For Debt Portion: With so much volatility in bond markets (credit risk, interest rate risk), I am better off investing in otherwise boring ideas of loaning to central & state governments and top-rated corporate papers thru EPF, NPS which can generate superior, safer and tax-efficient results.
As it suited my style, I always tried to keep the basics of the CTC on a higher side with every salary hike so that PF outflow is higher (as you may know, for most private-sector employees, both employer and employee contributions come from CTC).
I found that employment in a corporate that allows you to customize compensation structure can be a huge advantage, i.e. maximize the contributions to employer PF and employer NPS to hit the ceiling of 7.5 lakhs, which is straight away is taken out from taxable income.
This is so important if you are in a higher tax bracket of over 30%. Tax-exempt returns with no limits on contribution amount to VPF and employee PF was a longstanding lifetime opportunity till last year, which was stopped from 1st April 21.
I consider this was a much more significant lifetime opportunity loss than the equity bull run post-Mar ’20. Despite these constraints, you can further maximize tax-adjusted return on employer + employee PF contributions to align with prevailing PFF rates.
NPS has not gained popularity, but I am using it as a ‘balanced advantage’ fund. This low-cost product can yield the amazing experience of shock-absorptions of equity markets, investments in high-quality papers of G-Sec, State Developments Loan. They can also invest in REITs and even IPOs in a small way.
With imminent innovations & improvements to NPS as a product (pending legislation. E.g.. proposal to allow SWP instead of a compulsory Annuity purchase and such), this can be used as a great part of the core retirement portfolio and used as an “aggressive hybrid” and/or “balanced advantage” fund.
For example, I calibrated the equity allocation from 75% down to 50% in Mar ’21, when the consensus was that market was overheating. I can evaluate and change it myself as a fund manager twice a year (in Active choice) and switch the fund house once a year.
As you can see, I am biased towards making cost-efficient, self-informed investment choices with my mantra of “own what you know, loan who you know” principles to diversify across both equity and debt assets. I have recently started buying SGB (Sovereign Gold Bonds), but that is a tiny portion (<2%) of my portfolio.
I am looking to learn more from experts like Mr Pattu and others willing to share investment options in commodities and metals as an asset class. I like to take this opportunity to thank Mr Pattu for sharing my experience, and I hope you find it helpful. Thanks, Vasu.
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. 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: How Rohit’s early struggles defined his investment journey
- Eighth audit: Why my investments are still on track despite job loss and lower-income
- Ninth audit: How a retirement planning calculation scared me to take action
- Tenth audit: I made several investment mistakes but have turned my life around.
- Eleventh audit: My net worth doubled in the last financial year thanks to patient investing!
- Twelveth audit: My financial journey: from novice to goal-based investor.
- Thirteenth audit: My journey: from a negative net worth to goal-based investing.
- Fourteenth audit: From Fixed Deposits to Goal-based investing in MFs.
- Fifteenth audit: My 10-year financial journey – mistakes made and lessons learnt.
- Sixteenth audit (part 1): How I achieved financial independence without mutual funds or stocks.
- Sixteenth audit (part 2): Lessons from my financial independence journey and future investment plans.
- Seventeenth audit: How I plan to achieve financial independence and move to my native place
- Eighteenth audit: I used the current bull run to reduce my mutual funds from 14 to 4!
- Nineteenth audit: How a conservative investor created his own financial plan
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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Now watch Let's Get Rich With Pattu தமிழில் (in Tamil)!About The Author
Dr M Pattabiraman giving a lecture
- 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 14 years of experience publishing news analysis, research and financial product development. He has over 28 years of teaching and research experience. He is also a public speaker and keynote presenter.
- He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free, AUM-independent investment advice.
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- Pattabiraman has co-authored three print books.
This book helps you ask the right questions and find the right answers. It also includes nine online calculators to create custom solutions.
(2) Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want. 
Both the boy and girl versions of "Chinchu Gets a Superpower".
Most investor problems stem from a lack of poor decision-making. We made bad decisions and money mistakes when we started earning, and we spent years undoing them. Why should our children go through the same pain? What is this book about? As parents, what if we had to groom one ability in our children that matters not only for money management and investing but for every aspect of life? My answer: Sound decision-making. So, in this book, we meet Chinchu, who is about to turn 10. The story follows what he wants for his birthday and how his parents plan it, while also teaching him key ideas about decision-making and money management. What readers say! 
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 a young age. The importance of money management and decision-making based on their wants and needs. Very nicely written in simple terms. - Arun.
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