In this edition of the reader story, 30-year-old Mr Yo (name withheld on request) explains in detail how he has systematically structured his money management and how he tracks his financial goals. This is a follow-up to his previous audit: How I track financial goals without worrying about returns.
About this series: I am grateful to readers for sharing intimate details about their financial lives for the benefit of readers. Some of the previous editions are linked at the bottom of this article. You can also access the full reader story archive.
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.
If you would like to contribute to the DIY community in this manner, send your audits to freefincal AT Gmail dot com. They can be published anonymously if you so desire.
Please note: We welcome such articles from young earners who have just started investing. See, for example, this piece by a 29-year-old: How I track financial goals without worrying about returns. We have also started a new “mutual fund success stories” series. This is the first edition: How mutual funds helped me reach financial independence. Now over to Mr Yo.
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Thank you for allowing me to write an article on your blog again and for helping me learn so many things. My primary motivation to write this is to force myself to document my thought process at this time and revisit (and hopefully write) every year (at least once like this one) to see the evolution.
About me: I’m an engineer who passed out in 2013. I belonged to a lower middle-class family. My interest in excel helped me to explore and enjoy spending time reading/watching/trying things. Currently, I’m working with Chandan Singh Padiyar as my Fee-Only-advisor. I got married in November 2019 and have a daughter of 18 months now. I have a car loan from a company car lease plan. I’ve four dependents and a 20k minimum commitment to charity.
Basics:
- Term Insurance: 42x of current annual expense bought in December 2018 + office term insurance of 20x.
- Medical Insurance: office provided 3l ( for me, my wife, daughter and my parents), personal insurance of 10l + 40l (for me, wife and daughter)
- Contingency fund: 7 times monthly in-hand salary or ten months of monthly expense + 3l of medical cash cover
- Personal Accidental Cover: 24x of current annual expense bought in April 2022 + office accidental insurance of 20x
Goals:
All the goals are colour coded for ease of tracing. They are listed below:
- Orange shades: Retirement
- Yellow shades: Home
- Purple shades: Kid’s future
- Grey shades: Contingency
Assumptions, an overview of plans and the status of all goals are as below. All the graphs shown are plotted with the y-axis in log scale to appreciate the real rate of growth. The lower covered part shows the annual status of all goals as of 1st Jan of that year.
The distribution of the goals across different accounts and statuses is as shown below. The left side shows all the goals, their current completion status, movement in the last month and their values (hidden). The central part shows the distribution across the assets in total networth with selectable filters from the top centre. Next to it is networth movement in the last 50 days. The right side shows the asset allocation of today across accounts.
All mutual fund holdings are in direct plan growth option. Equity mutual funds are only of index funds (UTI and ICICI) with a target 60-40 allocation between top 50 and next 50. In debt space, for very long term goals 10 year constant maturity gilt funds (ICICI + SBI) are used. For medium term money market fund (franklin) and for short term liquid fund (quantum) and arbitrage funds (UTI + ICICI+AXIS) are used.
Retirement: Intend to retire not before 55 (that if the company keeps me). I can become Financially Free possibly much sooner, though I’m not targeting and trying for it. Last few years quick growth in company has helped me move fast on this goal. Current corpus is equivalent to roughly 11.3x of current annual expenses. Evolution of investment philosophy and plan of investment is as shown below.
My asset allocation is bit tricky due to large allotment towards company ESPP (employee stock purchase plan) and RSU (restricted stock units) allocation and large discounts/fast movement of stock. I only invest monthly for this goal through ESPP contribution and EPF (employee provident fund) contribution (both auto deducted from salary pre credit to account). Rest accounts are updated every 6 months (or when very skewed) to the target allocation (or nearby it) by either selling of company stocks or fresh capital infusion. I do some investments in direct equity as a hobby and expect 0% returns (not including any details as it is about 1 year old portfolio). Although it has grown it’s allocation significantly in last 1 year I intend to cap it to maximum 10%.
The evolution of asset distribution with time is as follows:
Home: Intend to have roughly 50% of the home’s purchase price accumulated before I’d go to buy. This is a tentative plan and has been revised couple of times. Hopefully I can have all the money for home ready and then get home to pre-close it anytime I wish to. Last year I could not invest aggressively for this goal and hopefully would be able to next year. Expenses for my daughter’s day to day living and new car increased and I was not able allot sufficient priority to this goal then. Philosophy and plan of investment is as shown below.
As it is a short term goal whole amount is kept in debt fund (100% debt) with periodic inflows from selling of company equity at opportune moments. In early days this goal was sharing amount with emergency fund. But now it has been split once the emergency fund was sufficiently big.
The evolution of asset distribution with time is as follows.
Kid’s Future: Intend to have roughly single goal for all undergraduation expenses, marriage expense and if sufficient then post graduate expenses. I’ve not yet been able to decide if I want to plan for all the education or let her learn with education loan. I’ve modified the strategy to allocate all company RSU’s (restricted stock units) for this goal and only keep small amount of holdings for company shares for this keep aligned with asset allocation target. Rest are kept tagged for retirement. Philosophy and plan of investment is as shown below.
Asset allocation for this goal was very skewed last time and I’ve now kept it near the targets at cost of keeping only required amount of company stocks tagged to this goal and rest to retirement. As I reshuffled the holding of this goal the amount I had marked for this goal last year was more than I’ve now.
The evolution of asset distribution with time is as follows.
Contingency fund: Described mostly about this goal in basics. Next plan is to have kind of sinking fund/very short term goal fund (holidays)/equity opportunity fund/gadget replacement fund allotted within this category. I was suggested a nice name to it as income stabilization fund. The idea for this fund comes from the need to manage my messy/variable salary structure. Many months due to different events my salary varies from negative to somewhat positive to normal salaries. Months with less salary are difficult to manage as the expenses more or less remain constant. Plan of action going forward is to sell company stocks at “opportune moment” or in “moment of need” and save it in axis arbitrage fund. The amount would be something like say 6 months salary. Once the amount goes below 3 months, I look out for the time to sell company shares (opportune moment). If I cannot sell it even when the fund goes below 1 month expenses, I sell the stocks irrespective of price (moment of need). This still needs some working and planning to be done. At this point I’ve some amount in arbitrage fund but is inadequate w.r.t. plan of 6 months.
The evolution of asset distribution with time is as follows.
Thoda Gyaan:
I believe there is nothing which can give growth better than salary. I’ve never switched my company in all these 9 years+. I believe real value can only be extracted from organization as well as individual only after sufficiently long time (also I’m lazy). I try to follow same policy even for my holdings and not intend to change them much. I personally don’t track neither XIRR or CAGR or even investment amount. I only look at the movement of the portfolio month on month or even year on year. As long as portfolio is growing at steady pace it doesn’t matter if it is growing because of more investments or gains. The way I audit my goals at portfolio level with asset allocation and overall progress is by looking at the plan of goals graph y-o-y (first one in the goals section) and the growth of portfolio graph m-o-m below.
Being conservative person I prefer to track portfolio level volatility or the risk by gauging 3 4 factors on top left i.e. % days on all-time high (ATH), % days when portfolio is below underwater more than 30 days, maximum consecutive days portfolio has been underwater and peak drawdown. Color shades which are equal to headers means the asset allocation is in line. Lighter shades means less risky and darker shades means more risk. Y axis in the graphs below is calibrated to value 100 as of last years’ networth and other numbers are proportionately modified. First entry is the starting value of the all the goals before I started tracking using this tracker (25th September 2019).
Few Events of Last year:
- I moved majority of my company share holdings from kid’s future goal to retirement which shows as a big fall in the goal.
- The networth grew roughly 33% over last year even with the kind of choppy markets.
- Portfolio was underwater for more than 100 days, which was difficult 😊
- I could not sell my stock holdings in :moment of need” as well as “opportune moment” during underwater time which meant I sold my home goal debt fund holding ☹
- Overall contingency fund movement was huge and this year forced me to think (Thank you Ashal Jauhari Sir) about income stabilization fund I mentioned above.
- Important understanding of my portfolio over last year was unlike the ideal way of investing according to asset allocation, I invest most things without my control over it. This means only way to stick to desired allocation is sell and distribute at a defined frequency or threshold (and taxes are unavoidable).
- I could do many of the planned things from last year in the section below.
Remaining plans for upcoming year are:
- Get health insurance
- Get accidental insurance
- Rebalance kid’s future goal mid-December
- Rebalance Retirement goal mid-March (along with annual review with Chandan)
- Increase contingency fund -> create income stabilization fund within this goal
- Improve fractal stock allocation strategy -> I’m satisfied with my current approach
- Create hard copy of information (handbook) for my family to access everything in
- case of my non-availability
- Have joint bank account
- Add nominations to all accounts
- Have a sample will
Reader stories published earlier
As regular readers may know, we publish a personal financial audit each December – this is the 2021 edition: Portfolio Audit 2021: How my goal-based investments fared this year. 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!
- Update: How I achieved investing nirvana.
- 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 financial plan
- Twentieth audit: I plan to achieve financial independence by 46; this is my master plan
- Twenty-first audit: I have made many investment mistakes but am on course to financial independence by 45.
- Twenty-second audit: I met with an accident the day I got married and learned key money lessons.
- Twenty-third audit: My financial journey was directionless until age 40: this is how I made up for lost time
- Twenty-fourth audit: Why I increased equity MF investments by 275% and reduced PPF contributions.
- Twenty-fifth audit: How I track financial goals without worrying about returns
- Twenty-sixth audit: I am 24 and started investing 1Y ago, but what am I investing for?
- Twenty-seventh audit: How we plan to achieve a retirement corpus 50 times our annual expenses.
- Twenty-eighth audit: I thought equity investing was a gamble, but now I aim to hold 60% equity for retirement
- Twenty-ninth audit: My journey: From 5 lakhs in debt to building a corpus worth six years in retirement
- Thirtieth audit: My investment journey: From random purchases to a goal-based portfolio
- Thirty-first audit: My investment journey: from product-driven to process-driven
- Thirty-second audit: How a young couple is trying to balance travelling and investing
- Thirty-third audit: My journey: From Rs. 30 bank balance to financial independence.
- Thirty-fourth audit: Our journey: From scratch to a net worth of 18 times annual expenses.
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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