A Let’s Get Rich with Pattu podcast listener says, ” I learned about your podcast today and watched an Episode on Stocks vs. MF Investing on YouTube. It was interesting and packed a lot of common sense in a simple and interesting way. I have a question which I request you to answer”.
“I shall retire next year with a reasonable pension. I currently invest in Index funds and direct stocks, apart from PPF. My present equity portfolio is about 70 lakh (75% large cap, 25% mid & small cap)”.
“Post-retirement, I want reasonable returns from my equity portfolio to be withdrawn when needed – holidays, marriages, etc. I don’t need it every month for regular expenses. I have thought of 3 broad investment themes for my equity portfolio post-retirement.
1. Direct Equity – mainly large cap with about 20% mid/small cap.
2. Direct Equity – 50% good dividend stocks, 50% in large/mid/small cap stocks.
3. Index Funds – 100% – Nifty 80%, Nifty Next 50 – 20%.
Which themes suit a retirement portfolio, especially concerning yearly and tax withdrawals? Or is there something else I should look at?”
The primary considerations are:
If the corpus is large enough to comfortably tackle sequence risk and combat inflation in retirement, we can consider ways to construct the equity portfolio.
Few retirees will have an established equity portfolio with stocks and index funds. The existing mix of 75% large cap and the rest in mid and small caps is fairly okay if the overall equity exposure is not more than 30%. This will ensure minimal tax incidence due to churn in equity constituents (if not zero).
Regarding dividend stocks, I think you would already be holding some good dividend papers in your large cap portfolio. So that should do. There is no need to change anything just because divided are now taxed as per slab. Even post-tax, it can be a good source to fund our wants.
Perhaps after a decade or so into retirement, you can slowly reduce direct equity exposure and increase the exposure to index funds, as managing these would be easier.
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Dr. 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 ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter, 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 promoting unbiased, commission-free investment advice.
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