What investment strategy would you recommend if I can invest 50K a month?

Published: November 22, 2021 at 7:00 am

Aditya Tejas writes, “Thank you for all your work; I appreciate the time and effort you put into creating relevant, insightful and thought-provoking content. I’ve already gone through your flagship course. It helped me (re)think about my asset allocation, and I’m grateful for your insights”.

“Also, I’ve taken notes on your views about “index investing” as well as “low volatility + momentum stocks”. Both these ideas appeal to me. For a newbie like me, who wants to keep it simple and can invest more than 50k a month, is it possible to recommend one investment strategy over another? Why?”

“Or am I looking at this incorrectly? Is it better to do both instead of one? Or maybe invest 90% in the index and 10% in low volatility stocks (or vice-versa)? If you believe this is a valid question, please consider writing about this. Thank you”.

Aditya is a content marketer & strategist, so it would be reasonable to assume he does not have EPF or employer-based NPS. Since his income is likely to fluctuate, we recommend that he first focus on building a robust emergency fund. He can consider investing Rs. 5000 to Rs. 10,000 a month in a liquid fund (with a reasonable stash in a simple bank account) until he has at least a years income kept aside. A robust health insurance and term insurance (if there are dependents) is also mandatory before investing can start.

With that in place, he needs two funds in his long term portfolio (meant for financial independence): A Sensex or Nifty index fund (50-60%) and a gilt fund (50-40%). Recommendations are available here: Handpicked List of Mutual Funds Oct-Dec 2021 (PlumbLine).

That is it! Aditya or any other young earner like him needs to do nothing else. For some inspiration, see How Avadhoot Joshi evaluates his investment portfolio.

To answer Aditya’s specific questions, low volatility investing is indeed a hassle-free way to pick stocks, but it still requires maintenance. I would not recommend it at this stage in life, especially for an entrepreneur whose time is limited plus deadline pressures. That time is better spent on leisure, planning their future, automation, business etc.

In principle, one can “invest 90% in the index and 10% in low volatility stocks” and call it the core and satellite portfolios. Many people tend to justify trading or crypto or anything fanciful this way. The catch is that the satellite sometimes takes the “core” of their free time and is not worth it.

We firmly believe that our free time should be spent doing nothing; creative pursuits, upskilling etc. That is any activity that would make us healthier and possibly result in a higher income. This has much better odds of making us wealthier over time than any other “small exposures”.

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