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

image of descending escalator representing My retirement equity MF portfolio return is less than three percent after 12 years!

Published: May 6, 2020 at 4:40 pm

Last Updated on

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.

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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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Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice.
He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com

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26 Comments

  1. Hats off to your honest review. Your journey with MF and personal finance is a guiding light for many of us newbies. Please keep it coming.

    1. Need guts to give a honest review like that. Great work Pattu sir. I didn’t find comfort in this equity market so stuck to Real estate for my retirement income where I’m more comfortable even if returns may not be comparable to equity markets during bull run but it does give some constant rental return apart from property appreciation giving me piece of mind. Now real estate market is not great either but atleast rental returns are constant and just like equity market, real estate market too has its own tricks and trade and it comes from experience in investing. Everyone knows this too shall pass but we should just stick on to what we believe and what we are comfortable and as you write in your blogs, keep in mind asset allocation and when you need money.

      1. sir, are u talking about Commercial RE or Residential..I also endorse to your views to some extent…but more inclined towards CRE..

  2. I keep telling people and this article is one more such confirmation. Even the savvy, experienced, competent finance guys couldn’t generate more than 2.5% returns perhaps overall of 4% return (equity+debt) over a reasonable period, what chance normal people have. We talk inflation eating our money and so on but the reality is different and earning real return is myth. If the normal people keeps the money in the private banks, they will be lured into complex products and subsequently lose the entire capital. A huge liquid corpus attracts misselling, scams and frauds. Best for most of them is real estate and rental option. If they realise this , they will do much better.

  3. Wouldn’t a simple index fund tracking the S&P 500 have yielded an XIRR of over 8% for that time period? That’s what it showed me when I punched those dates into an S&P calculator. Why not do that or a total US stock market index?

  4. Has re-balancing as it was done, achieved what it was supposed to have done?

    Would re-balancing done on basis of better recognition of ‘internal weather’ of stock markets & ‘external climate’ of economy, have provided the kicker?

  5. Even the speculator in stocks doesn’t care because he has a regular salary too. We have been into this game for long. The numbers do not evoke much.

  6. Until Feb 2020, the market return was great. COVID-19 is a black swan event…nothing related to fundamentals of stock market. People who say real estate is safer/better, try to get rent now or try to sell your RE now…see what you get.

  7. I just started mutual funds investment a week back, this article is a shocker for me !!! a very knowledgable investor investing more than a decade in equity fetching 2.75% returns !!!

  8. @Chander You are shameless and thankless. After reading the whole post and gaining knowledge, instead of thanking, you are talking rubbish!

  9. I guess 31 times of annual income amount is just because he has been doing rebalancing and that’s a commendable job pattu sir. And 2.75% return is just after a crash (which we are having in negative) of his 50% equity exposure. This 2.75% can become 10-15% if market goes bullish withing 2-3years. So chuck it off guys. Stay invested. Unlike real estate having low rentals and stupid stamp duties.

  10. The fund houses CEO salaries have multiplied X times in these 12 years.
    As compared to our returns.

    Thank you Sir, for the honest review of 12 years.

  11. I am a tactical asset allocator and keep on changing my strategy with developments in Global markets. Few of the moves I made.
    1. 2015: Invested one shot 5% of my portfolio in DSP world Gold Fund.
    2. Jan 2018: Redeemed in one shot all my mid and small cap MFs.
    3. Sep. 2018: Switched all underperforming Debt fund to Gilt funds in wake of ILFS fiasco.
    4. Jan 2020 : exited in one shot all equity MFs and entered Gilt funs const. Mat.
    5 March 23: Entered in one shot 5% of portfolio into pharma fund.
    It is raining showers for me these days.
    Buy n Hold is now antiquated.

    1. @Ramesh, it is impressive. Can you elaborate what parameters you have used to take these actions?

    2. Odd I have done something similar.Moved completely to Gilt from Debt and I see thats the only thing giving returns last 2 years.Almost every analyst discourages Gilt saying its interest rate dependent but we are a rate falling market and if you look at last 10 years these funds have done consistently well.
      Also I invested in Pharma a bit 6 months back and thats the only green part in the portfolio. I really dont believe in the advise that Sector MFs to be avoided. Almost always Sector MFs if timed well have given returns.

  12. Buy & hold is very outdated concept promoted by looters of retail all over the World.
    I have been following tactical asset allocation mainly because Indian Fund Managers don’t o it and have been richly rewarded.
    In India it is more so.

  13. Assuming you have rebalanced your portfolio on a annual basis, you must have in some periods realised some of the equity gains and moved them to your debt portfolio.
    Hence, it probably also be a good idea to understand the total XIRR of your overall portfolio over this period especially in light of this returns on equity finding !

  14. You said your coorpus is 33 times your current annual need. What Percentage of your monthly income you are putting for retirement including ppf/epf/nps/my/equity ?
    Also do you have any homeloan/emi going simultaneously ? Want to know just for a comparison to common person who will have emi/loans/kids education going on and we stil want to have a savings like this.

  15. Hi Pattu, are you not making the case here for timing the market – always invest (allocate to equities and get the asset allocation right) during a substantial crash? Invest only in fixed income at other times?

  16. That my dear sir is the truth of all these new great investments – after SIP, time in market, dip, pip, the only ones to end up with money is Mallaya, Modi, Jet Chairman. Ever seen any of them loose money. Ever seen your traders, advisers, consultants loose money. Don’t get carried away by “great” advise, “analysis” in newspapers. The authors are the same people. Insurance agents writing advise on insurance. Don’t worry now after retirement you can take a new job, work till death and make more money for these characters.

  17. That was a very real / factual report; thanks for that! I do wonder about the statement regarding the importance of returns vs total corpus. Granted corpus is what finally matters, but if returns are too low, then your corpus is nothing but your savings / investment amount itself. That requires one to have a huge salary if a respectable corpus is to be built up. So on that point I have to disagree – returns is very important, else an average person can never accumulate the required amount.

  18. This is the case where you would feel the difference between direct MF and regular MF. Incase of direct MF return could have been 3.5 cagr. ( 30% higher)

  19. If you are seeing a 2.75% returns at the moment, there are 3 ways to explain it.
    1. Equity gave you miserable returns. Not true.
    2. You did not re-balance. Again not true.
    3. You not near the end of the investment tenure for your goal.

    The third is the only reasonable explanation I can think of, which means you still have some time to go – so your portfolio should recover.

    1. @ Raj – how is #1 not true? It’s a cold hard fact. If the market takes 2-5 years to recover this sub-par rate will persist for months to come.

  20. @RAY CHAUDHURI
    Equity will always have ups and downs – that’s the very nature of the beast. In the author’s own words, post his first 5 years, he saw very good returns – so much so, that he considered himself as having moved up a notch or two on the social ladder. I would say that’s about as good as it gets. When viewed over the 12 years or so that has been investing, equity behavior has been what I would call normal – the market has shown him all its colors, all mood swings – its not like equity has always provided sub-par returns all along. That’s how I see it.

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