A reader says, ” I am 35 years old, and I started my “equity” investments quite late (around 2021 when I was 33). Until then, debt instruments and real estate have been my primary investments for my retirement. So debt in my retirement portfolio has a major weightage at about 70%.”
“I would like to increase equity % in my retirement portfolio to the tune of 60% at least over the next few years, so in this regard, I am aggressively investing my savings in mutual funds (such as PPFC) and part of it into stock market too (some safe, low volatile stocks in the index). I am considering this since I am at least 25 years from when I would like to retire”.
“Since my equity exposure is low, I hope I do not require rebalancing until I hit my intended equity/debt ratio. Do you still suggest rebalancing? If yes, how? Kindly suggest if this approach is okay”.
I recommend removing the real estate (RE) investment (own house has no value) from asset allocation and re-assessing the equity to fixed income ratio. You can factor in the RE value when ready to sell it. Until then, you can include its rental income in retirement planning. The freefincal robo advisor tool allows you to do this.
Once done, you can aim for a 50-60% equity allocation. Yes, you can invest aggressively in equity without rebalancing.
It is easy to say “invest aggressively”. During a bull run, it would seem like an excellent idea. However, it will be hard to keep that up when the markets crash (and it will) and, worse, during a sideways market because of political or economic instability for 5-6 years. So discipline is necessary.
I recommend projecting your future cash flow on a spreadsheet. Your income, expenses, how much you can invest, and how much will all these increase in the coming years? This will give you some clarity and a target to stick to.
Some additional considerations:
- Do a proper goal-planning exercise. Determine the retirement corpus required.
- You can use our goal-based Portfolio Review/Audit Tool to adjust your asset allocation and investment amount required to determine how close you reach your retirement corpus. This will give you further clarity on the asset allocation target each year.
- Keep in mind that at the time of retirement, your equity corpus should not be more than 30% to 35%. So, you will need to start decreasing equity exposure well before retirement. The sheet mentioned above can help you set targets.
- You can use the above audit tool to adjust the asset allocation in future years with reasonable return expectations.
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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(X), 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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