What return should a 30-year-old investor aim for their retirement portfolio?

Published: January 23, 2021 at 10:54 am

Let us discuss a question received a few days ago: “What return should a 30-year-old investor aim for their retirement portfolio?” Retirement is assumed to be a good 25 years away.

The first step of having a clear goal: Why the money is needed and when it is needed is already part of the question. So 25% of the question is already answered! I have seen investors in personal finance questions ask questions like, “What return can I get from equity over three years?”. If you tell them three years is too risky, they would immediately say, “ok over five years, repeat the answer, and they would go, ‘ok over 10 years” without clarity on the why and when no investment planning can be done.

The second step is to recognise inflation. Long term inflation in India if we consider no additional expenses is at least about 6%. If we consider lifestyle changes (good or bad), then 7-8% inflation is a safe bet. It is possible that it can decrease in future (and retail inflation has) but, considering we import fuel – one of the key overall inflation drivers, it is better to err on the side of caution and assume at least 7%.

The third step immediately becomes clear: what should be our target portfolio return after-tax: Technically it can be 5% or 7% or 9%, but it should be obvious that lower the return expectation, more would be the investment required to reach the target corpus.

  • Inflation is the benchmark. Our portfolio return after tax over the next 25 years should at least match inflation. To avoid depression results, we will assume an inflation of 7% and an overall portfolio return of 8%.

The fourth step is to plan an asset allocation for this return. For this, we must have some return expectation from different asset classes. It is impossible to get 8% post-tax return from fixed income asset alone. Over the next 25 years, we can expect PPF to inch below 7% at the very least. EPF may still theoretically give 8%, but if they keep at it, they will credit “annual” interest once in about five years and exploit their Ponzi nature: Delay in EPF interest payment: Is there a loss to the subscriber?


The point being, fixed income alone is not sufficient, and the return from the fixed income should be assumed to be considerably lower: 6% post-tax is a reasonable assumption as of now – meaning these estimates should be revised each year.

A safe assumption for long-term return from equity would be 9% after tax. Why? See:

Some people react, “If I am going to have to expect only 9% over equity over the long term, might as invest in high-return bonds or FDs”. The risk, particularly hidden risk, is incredibly high here. If the stock market crashes, there is an excellent chance it will eventually recover. If a corporate FD or bond defaults, you might kiss your money goodbye (unless it has Ponzi powers like EPF which defaults on its debt every year like clockwork).

The fifth step is to decide the initial asset allocation mix. Suppose we decide on a 50% equity and 50% fixed income portfolio  – this works quite well: see: Will Benjamin Graham’s 50% Stocks 50% Bonds strategy work for India? – then the overall portfolio return (our aim) is:

[50% x 9%] + [50% x 6%] = 7.5%

This may be disappointing to many, but please recognise this is not the annual return on your portfolio. This is the expected overall portfolio return after 25 years (in this case) which is not bad.

Of course, when we project it in on a spreadsheet the 7.5% will be an annual return, but annual equity returns easily fluctuate from -50% to 150%, so it important not to take that projection too seriously.

A few good years for equity, combined with regular rebalancing and systematic increase in investing will reduce our dependence on X% or Y% returns. It will take a few years. Got to hang in there.

The key is, if we expect less, it is easier to avoid disappointment with simple annual reviews and rebalancing.

The word “initial” is in bold red because we will have to plan an equity de-risking strategy – this can be automated with the robo advisory template.

The sixth step is to find out the retirement corpus required. That is we need to either use a retirement calculator or build one ourselves. You can refer to this detailed guide: Find out how much you need to retire in 15 mins: build your own calculator!

Before we do this, it is important to appreciate that the investment amount required will be higher than we can afford. This is a law of nature. There is no need to worry. We need to put our head down an increase our investments as much possible, at least increase at the rate of inflation, but a bit higher say 10% would be near-ideal: Why increasing investments each year is crucial for financial freedom.

Note to the newbie: We are six-steps in, and still not discussed any products. If we plan first, the product categories can be derived from the plan. If we look for products first, either we change the plan to fit the product or spend years undoing past mistakes.

“How to run a marathon?” asked the newbie to the Guru.
The guru said: “you need to train for many months. Starting with short distances and then gradually increasing the distance.”
The newbie said angrily, “that is fine. Just tell me how to run a marathon?” The guru fell at the newbie’s feet, said ‘ok’ with folded  hands and blocked the newbie (ran away).

The seventh step is investing. Where should I invest that 50% equity? There are many choices, but the simplest would be a Nifty 50 index fund. The 50% fixed income for the salaried can be EPF, PPF, VPF, NPS (with little or no equity).

The eighth step is the annual portfolio review. Initially, a simple asset allocation check and rebalancing are enough. If you want some inspiration, check out  reader reviews:

The ninth step is to ask, “what is missing in this plan?”. This free seminar is a good starting point: Basics of portfolio construction: A guide for beginners.

Do share if you found this useful

My new book for kids: “Chinchu gets a superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both boy and girl version covers of Chinchu gets a superpower
Most investor problems can be traced to a lack of informed decision making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain?
Amazon review of Chinchu gets a superpower
Amazon review of Chinchu gets a superpower
What is this book about? As parents, if we had to groom one ability in our children that is key not only to money management and investing but for any aspect of life, what would it be? My answer: Sound Decision Making. So in this book, we meet Chinchu who is about to turn 10. What he wants for his birthday and how his parent’s plan for it and teach him several key ideas of decision making and money management is the narrative.
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
Get Chinchu gets a superpower for your child!
How to profit from content writing: is our new ebook for those interested in getting side income via content writing. It is at available at a 50% discount for Rs. 500 only!
Did you know? We have more than 900+ videos on YouTube to explore! Join our YouTube Community!

Use our Robo-advisory Excel Template for a start-to-finish financial plan!

Join our courses in exclusive Facebook Groups!

  • 520+ members are now part of our new course: How to get people to pay for your skills! (watch 1st lecture for free). Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show how to achieve by showcasing your skills and building a community that trusts you and pays you!
  • Goal-based portfolio management! Join 2125+ members and get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free!  One-time payment of Rs. 3000 only. No recurring fees! Life-long access to videos (10+ hours content)  in an exclusive Facebook Group! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.

Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!) or you buy the new Tactical Buy/Sell timing tool!
We publish mutual fund screeners and momentum, low volatility stock screeners .every month.
About the Author 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 money management topics. 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 based on money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association, IIST Alumni Association. For speaking engagements write to pattu [at] freefincal [dot] com
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions, seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)
Free android apps