Portfolio Audit 2021: How my goal-based investments fared this year

Published: December 18, 2021 at 7:00 am

Last Updated on December 29, 2021

I evaluate my retirement portfolio’s performance and my son’s future portfolio in a personal finance audit each year. This is the ninth edition. Published since 2013, these audits provide a sense of accountability and ensure I do not fall prey to fear of missing out, preventing bad investment decisions.

I am proud and delighted that since last year several readers have also published their audits at freefincal inspiring the next generation of DIY investors. See, for example: How Suhas tracks his MF investments and reviews financial goals. Suhas has already sent a 2021 update which will be published next week. For a list of other articles, see: How mutual funds helped me reach financial independence.

Archive:  This is the archive of personal finance audits published before: 2013 audit2014 audit, 2015 audit2016 audit2017 audit, 2018 audit, 2019 audit, 2020 audit.

Objective: I hope these audits will encourage other readers to review their portfolios in a goal-based manner. My success (if I can call it that) is simply because of luck and discipline. I write this with gratitude with no intention to boast.


Overview

Compared to 2020, portfolio-wise, 2021 has been a relatively quieter year. I rebalanced my retirement portfolio for the first time in April and then again in September.

The focus on asset allocation needs to be even higher as I have transitioned from a growth phase to a consolidation phase for my long-term goals – retirement and my son’s future.

Retirement

  • Asset Allocation: Equity: 60%; Fixed income: 40%
  • The Equity comprises of Mutual Funds: 81.5% and the rest direct equity.
  • My stock portfolio gradually grew in weight from 9% in Dec 2020 to 18.5%. Regular readers may know that I have been updating the stock portfolio each month.
  • Fixed income: NPS was the dominant chunk last year with 83% weight. This year, since I rebalance twice, the NPS weight is down to 61%. About 21% is in ICICI Gilt Fund and 5% as “cash” in Quantum Liquid and ICICI Arbitrage Fund. The remaining 13% is held in two PPF account (mine and my wife’s)
  • Note: The NPS has 15% equity + long-term gilts (majority). The reader, particularly those with the default govt NPS allocation,  is cautioned that long-term gilts are extremely volatile. My NPS corpus returns dropped almost half after the July 2013 bonds crash. See 11 years of investing in the NPS.
  • The current NPS XIRR (market-linked since March 2010, 8% fixed before that) is 9.85%.
  • Equity mutual funds
    • Overall XIRR since June 2008: 19.57%. This should not be taken too seriously: On March 23rd 2020, after the biggest intraday fall, my retirement equity MF portfolio return was 2.75%. If, after 12 years, the returns could crash to that level, we must learn to evaluate our portfolio by different metrics. This is why goal-based investing is crucial. You cannot buy groceries or a college education with impressive XIRR data!
    • HDFC Balanced. XIRR: 15.51% (consolidated after the merger to become Hybrid Equity, using my tracker) Weight: 25.7%
    • Parag Parikh Long Term Equity Fund XIRR: 25.3% Weight 57.4%
    • Quantum Long Term Equity: XIRR 12.47% Weight: 16.8%
  • ICICI Gilt Fund: XIRR 6.7% (but this is only a few months)
  • Financial independence status: Let us just say it is well above thirty times my current annual expenses. This means if I retire now, I would be able to live off my corpus for the rest of my insipid life and draw an income that increases with inflation at a rate equal to the rate of the portfolio return (zero real return).
  • Those interested in planning for early retirement can consult this free e-book: Early Retirement in India -How to Retire Early Safely.

This is the normalized evolution of my MF retirement portfolio since its inception (Jun 2008), along with an equivalent investment in Nifty 50 TRI.

Since inception evolution of my equity mutual fund retirement portfolio compared with an equivalent investment in Nifty 50 TRI
Since inception, evolution of my equity mutual fund retirement portfolio compared with an equivalent investment in Nifty 50 TRI.

As mentioned above, the XIRR of the equity MF portfolio is 19.57%. In comparison, the XIRR of the NIfty 50 portfolio is 15.47%. An equivalent investment in Nifty Next 50 TRI would have resulted in an XIRR of 17.34%.

The performance since 1st Jan 2020 is shown below.

Performance of my equity mutual fund retirement portfolio in 2020 compared with an equivalent investment in Nifty 50 TRI
Performance of my equity mutual fund retirement portfolio in 2020 compared with an equivalent investment in Nifty 50 TRI.

The portfolio’s maximum drawdown (fall from peak) is -32.2% compared to -37.5% for Nifty 50 TRI. The five-year rolling standard deviation (fluctuations in 5-year returns) is about 9% lower than the NIfty 50 portfolio.

The deviation from Nifty 50 TRI (portfolio value – Nifty portfolio)/Nifty portfolio is shown below. I would like to call this a relative drawdown. A positive value implies that that portfolio has outperformed the Nifty. The sharp spikes are artefacts.

Relative drawdown of my equity mutual fund retirement portfolio in 2020 measured with respect to equivalent investment in Nifty 50 TRI
Relative drawdown of my equity mutual fund retirement portfolio in 2020 measured with respect to equivalent investment in Nifty 50 TRI

You can see that the portfolio has struggled during sideways market conditions (post-2009 recovery to late 2013 and from late 2017 to March 2020) but has outperformed during bull markets.

This can also be seen from the rolling five-year absolute gain.

Five year rolling absolute gain of my equity mutual fund retirement portfolio compared with an equivalent investment in Nifty 50 TRI
Five year rolling absolute gain of my equity mutual fund retirement portfolio compared with an equivalent investment in Nifty 50 TRI.

Understanding that this outperformance is more out of luck than anything else is important. At times the portfolio will outperform and sometimes underperform. Those who wish to avoid long years of frustration are better off with passive funds. Those with active funds must regularly rebalance and move gains to debt to benefit from the outperformance if and when it happens.

Also, much of this outperformance stems from Parag Parikh Flexicap Fund and its international stock weight. As an NFO investor in this fund, it has been a dream run so far, but the law of averages will soon strike.

How about index funds? The only reason I am thinking of index funds is to get rid of the need to evaluate fund performance for my wife/son or me. I am at a stage in life where I care little about alpha or expenses or tracking error. All I care about is low maintenance.

One part of me says start investing in an index fund and build its weight over time. Another part of me says it is just clutter considering the size and weight of other funds. So I am still on the fence. Maybe AMCs will make it easy for me and start a hybrid index fund. Active or passive, what matters the most is discipline – a talent I am lucky to have.

Building a robust fixed income retirement portfolio is the next goal. I am keeping an eye on Parag Parikh Conservative Hybrid Fund. This is not a recommendation – personal finance should be personalized!

Child’s Education

I have been investing for my son’s future since Dec 2009 (a month before he was born). Then it was an 18-year old goal, and now it has become a 6-year old goal. Last year I reduced the equity allocation from 67% to 55%.  It is currently 56% (after rebalancing twice this year!). I might reduce this further in the coming months.

Asset allocation

  • Equity: Asset allocation 55%. Overal portfolio return: 14.7%
    • HDFC Prudence. XIRR 16.8% consolidated after the merger as HDFC Balanced Advantage Weight: 30%
    • Mirae Large Cap Fund XIRR 17.4%. Weight 33%
    • ICICI Dynamic (ICICI Multi-asset fund) XIRR 16.5% Weight: 37%
  • Fixed income Asset allocation 45%
    • PPF (in his name) + I also use my mothers PPF. However, none of the PPF accounts is maxed out. 
    • I do not know the exact balance in my son’s PPF due to trouble with SBI, so asset allocation is approximate – not going to the branch just for this.
    • ICIC Equity arbitrage XIRR 5.3%.
    • ICICI Gilt Fund is a recent investment. The XIRR for what its worth is 5.9% See: Why I partially switched from ICICI Multi-Asset Fund to ICICI Gilt Fund.

Outlook & Summary

The key advantages I have had is time (starting early) and starting on a clean slate. Time allows you the luxury of handling market downturns, and it also changes your outlook on risk.

Ten years ago, I would have said 60% equity at age 47 is a bit much. However, today, I am comfortable with it and wonder what I should do to leave it at 50-60% even after retirement. Remember, it is all about what that remaining 50-40% in fixed income is worth and building a diversified retirement portfolio. See: How to build the ideal retirement portfolio. So time changes the way we view market risk. Not starting early can be a severe handicap in terms of how much risk we can take and how we handle it later.

If there is one takeaway that I would urge you to consider from my journey, it is this: Invest like a machine regularly as much as you can without worrying about market movements. If you have the time and mental strength to wait*  for two bull runs, your life can change, provided you keep investing regularly as much as possible.  * Wait here means wait with the right asset allocation and regular goal-based risk management.

The rate at which I have increased my investments is higher than its XIRR. See: Why increasing investments each year is crucial for financial freedom.  A lavish lifestyle or servicing too much debt can hamper our ability to pay for future goals or maintain our lifestyle in future. Finding a balance is crucial. I am still trying to find mine.

I urge readers to take advantage of the holiday season and vacation (if applicable) to evaluate how much they need to invest for their goals, tag their existing investments to different goals and plan their 2022 investment schedules. You are welcome to share this exercise as an article with freefincal readers. Here are some examples.

Reader audits 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.  The 2021 edition will be published in a few days. We asked regular readers to share how they review their investments and track financial goals.

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.

Do share if you found this useful

About The Author

Pattabiraman editor freefincalDr 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 nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation to promote unbiased, commission-free investment advice.
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