My retirement equity MF portfolio return is 2.75% after 12 years!

Published: May 6, 2020 at 4:40 pm

When I first computed the overall equity mutual fund portfolio return for my retirement corpus after the crash it was close to 10%. I thought, “hey that does not seem bad! Maybe with time, the XIRR sensitivity to market movement is lower”. Turns out, there was a problem in the calculation and the return is only 2.75% Does this affect my financially independent status?

I must thank members of the FB group Asan Ideas For Wealth for suspecting the initial XIRR. When I went back and checked my Excel tracker, there was no bug but for some reason, the macro was exiting before looping overall all transactions.

My first MF transaction was on 19th June 2008. So this XIRR of 2.75% is as on 5th May 2020, after 12 years (well, 44 days, short of 12), excluding my direct equity portfolio which is about 9.4% of my retirement equity MF and excluding transactions done today).  Read more: Ten Years of Mutual Fund Investing: My Journey and lessons learned

Current Status of my retirement portfolio

  • Asset Allocation
    • Equity (MF + stocks): 53.5%
    • Debt: (NPS 82% + PPF 18%): 46.5%
  • Overall XIRR
  • Individual MF performance
    • HDFC Balanced. XIRR: 6% (Down from 11.24% in Dec 2019).  Weight: 40.3%
    • Parag Parikh Long Term Equity Fund XIRR:  7.9% (down from 13.8% in Dec 2019) Weight 40.2%
    • Quantum Long Term Equity: XIRR: (something negative! down from 7.15% in Dec 2019) Weight: 19.5%
    • When returns become negative, the XIRR code in Excel needs a helping handing with a negative guess value. This has not been given (maybe I did not want to!) and hence the exact quantum fund return is not known.
    • Please note past transactions also would influence the overall XIRR value of 2.75% (down from 11.6% in Dec 2019)
  • Financially Independent status
    • I have a cash holding of about 6% of the total portfolio value. I might invest some of it into equity (to reset the equity allocation to 60%) or leave it as is.
    • Excluding the cash, the total portfolio value is 31 times my current annual expenses. Adding the cash would extend it to 33.
    • This means my current corpus might last for 33 years at zero real return.

Impression

It might seem like a failure to have got only 2.75% after 12 years of investing, however in terms of what the portfolio is actually worth (with respect to a goal), I am not in bad shape.

I have not checked if the portfolio (for my specific transaction dates and amounts) would have beat the Nifty or not. Will leave that for the yearly audits.

While in hindsight this is certainly a poor return – it seems like I might as well have put the money in an SB account – I would have not got a life-changing opportunity like in late-2013. After five years of zero returns, my life (or at least my portfolio) moved up the social ladder.

To get huge gains, one will have to suffer huge losses, however, if we focus on the right metrics, a 2% return or 10% return will not make much of a difference. See: Review Your Financial Freedom Portfolio in Seven Easy Steps

The future

So there is no question of regret or change of strategy. Running to the comfort of fixed income will undo all the effort and toil of the past and render my retirement plan a guaranteed failure.

The goal from now on is to focus on the cash component, increase it to 10%. Once the equity component hits 60% (later than sooner, I hope it will), I would like to rebalance to the 50%-50% Ben Graham portfolio we reviewed recently as I am getting on in years.

It is only sheer dumb luck that I have stayed afloat for the easy part of the crash. Now comes the hard part – months and months of sideways movement while the market waits for the economy to revive. This is the time to invest more in equity. No time for regret.

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