I am 37 years old with annual earning of 63 lacs before taxes. I have invested 25 lacs in stock market so far and have 12 lacs in PPF. I am investing 2 lacs per month in SIP and have 2 housing loans in Mumbai with total accumulated outstanding balance of 90 lacs. I have 62 lacs of liquid money currently parked in overdraft home loan accounts having yearly home loan interest of 9.8%. I am paying approx 60 k pm interest in total for my two housing loans. I have balance of 50 lacs in provident fund with monthly increase of 56 k. Also, I am earning 17k pm from rental income. I have term plan of 2.8 cr and wife have term plan of 1 cr with life time cover. I have few medical plans with full family + parents coverage. I have 6 year old daughter and planning for her sibling this year. I am a proud sanatani living minimalist and healthy lifestyle and don't really have much spending other than basic needs. At my retirement, I would still prefer to have earnings of 5 lacs per month using various sources. I want to retire at 55 with close to 60 cr so that my children can live happily after me! Also, I am planning for a world tour in my 40 and can spend upto 5 lacs per year for next 10 years. I have been very aggressive and risk taking investor so far. I have been able to get returns at the rate of 45% cagr by picking the right security at right time. However, given my age is now 37, I want advice on how can I effectively distribute my investment to reduce the risk and still being able to get 25%+ annual return on my capital. It will be great if I can measure advice and not a monologue of details available on internet. I respect skilled people who talk to the point and who are successful in their own life. Email me at krunal --dot-- iq --at-- gmail.com if you think you can be a good financial advisor for my use case.

Ans: You're in a solid financial position with a healthy income and diverse investments. Your annual earnings of Rs 63 lacs, substantial stock market investments, PPF, SIP contributions, housing loans, and provident fund show a well-rounded portfolio. It's impressive to see your planning and discipline. Your goals for retirement and your children’s future reflect your dedication to financial security.

You're currently 37 years old and aiming to retire at 55 with close to Rs 60 cr. This goal is ambitious but achievable with the right strategy. Let's analyze your current investments and suggest adjustments to help you achieve this goal.

Investment Portfolio Assessment

You've been aggressive in your investments, achieving remarkable returns. However, as you approach 40, balancing risk and return becomes crucial. Here’s an evaluation of your current investments:

Stock Market Investments: Rs 25 lacs.
PPF: Rs 12 lacs.
SIP Contributions: Rs 2 lacs per month.
Housing Loans: Rs 90 lacs outstanding balance.
Overdraft Home Loan Accounts: Rs 62 lacs at 9.8% interest.
Provident Fund: Rs 50 lacs, growing by Rs 56k monthly.
Rental Income: Rs 17k per month.
Liquid Money: Rs 62 lacs in overdraft accounts.
Term Plans and Medical Coverage: Comprehensive coverage for the family.
Your diversified portfolio is a strong foundation. The key now is to optimize for both growth and stability. Here are some detailed strategies:

Risk and Return Considerations

Your current 45% CAGR is exceptional but challenging to sustain. Aiming for 25% returns is still ambitious. Here’s a breakdown of realistic expectations and strategies to balance risk and return:

Equity Mutual Funds: While direct stock investments can yield high returns, consider equity mutual funds managed by skilled fund managers. They can provide diversified exposure and professional management. Expect around 12-15% returns, which balances risk better than individual stock picking.

Investing in equity mutual funds allows you to leverage the expertise of fund managers. They actively manage the portfolio, selecting stocks that have the potential for growth. This diversification reduces the risk associated with individual stock investments.

Actively Managed Funds vs Index Funds: Actively managed funds can outperform index funds due to skilled fund managers identifying opportunities and managing risks. Index funds, though lower cost, mirror the market and may not deliver the high returns you seek. Regular funds through a Certified Financial Planner can offer better support and tailored advice.

Actively managed funds involve a more hands-on approach, where fund managers actively select stocks and adjust the portfolio to maximize returns. This active management can lead to higher returns compared to index funds, which simply track the market index. Additionally, investing through a Certified Financial Planner ensures you receive personalized advice tailored to your financial goals.

Debt Instruments: Include high-quality debt funds to stabilize your portfolio. They provide lower but stable returns, balancing the high risk of equity investments. Aim for around 7-9% returns here.

Debt instruments, such as government bonds, corporate bonds, and high-quality debt funds, offer stability to your portfolio. They are less volatile than equities and provide a steady income stream. This stability is essential, especially as you approach retirement and seek to preserve your capital.

PPF and Provident Fund: Continue your investments in these for tax-free, risk-free returns. They offer steady growth and can act as a safety net.

Public Provident Fund (PPF) and Provident Fund (PF) are excellent options for risk-free returns. They offer tax benefits under Section 80C and provide a guaranteed return. These funds should be a part of your retirement planning to ensure a stable income post-retirement.

SIP Strategy: Your Rs 2 lacs monthly SIP is a robust strategy. Diversify across large-cap, mid-cap, and small-cap funds to balance risk and reward.

Systematic Investment Plans (SIPs) help in disciplined investing and rupee cost averaging. By investing a fixed amount regularly, you buy more units when prices are low and fewer units when prices are high. This strategy reduces the impact of market volatility on your investments. Diversifying your SIPs across large-cap, mid-cap, and small-cap funds ensures you capture growth across different segments of the market.

Housing Loans and Overdraft Accounts

Your Rs 62 lacs parked in overdraft home loan accounts helps reduce interest outgo. Here are some considerations:

Prepayment of Loans: With Rs 90 lacs in outstanding loans, prepaying can reduce your interest burden. This is especially beneficial at your current 9.8% interest rate. Prepayment can be a strategic move to save on interest costs and reduce the overall loan tenure.

Prepaying your housing loans can significantly reduce the total interest paid over the loan tenure. With interest rates at 9.8%, prepayment can lead to substantial savings. However, ensure that prepayment does not attract any penalties and that you still maintain enough liquidity for emergencies.

Emergency Fund: Ensure you maintain a sufficient emergency fund. Your liquid money in overdraft accounts is useful, but some should be kept in a more accessible form, like a high-interest savings account. This ensures you have liquidity without affecting your investment strategy.

An emergency fund is crucial for financial security. It should cover at least 6-12 months of your living expenses. Keeping a portion of your liquid money in an easily accessible form ensures that you can handle any unforeseen expenses without disrupting your investment plans.

Rental Income and Future Investments

Your Rs 17k monthly rental income is a steady stream. Consider these points:

Real Estate Exposure: Avoid increasing your real estate exposure further. It’s illiquid and can tie up significant capital. Instead, focus on investments that offer better liquidity and growth potential.

Real estate investments are not easily liquidated and can require substantial capital for maintenance and taxes. Diversifying into more liquid investments such as mutual funds or stocks ensures you have access to your funds when needed and can capitalize on growth opportunities.

Reinvestment: Reinvest rental income into diversified mutual funds. This enhances growth potential and liquidity. By reinvesting your rental income, you can leverage the power of compounding, further boosting your portfolio’s growth.

Reinvesting your rental income into diversified mutual funds not only helps in capital appreciation but also provides better liquidity. This strategy ensures your money works for you, generating returns over time through compounding.

Insurance and Coverage

Your term plans and medical coverage are crucial for family security. Here’s how to optimize:

Term Plan: Your Rs 2.8 cr and your wife’s Rs 1 cr coverage is substantial. Ensure it’s reviewed periodically to match inflation and financial needs. As your financial responsibilities grow, it’s essential to adjust your coverage accordingly.

Regularly reviewing your term insurance coverage ensures that it aligns with your current financial situation and future responsibilities. As your income and financial obligations increase, adjusting your coverage provides adequate protection for your family in case of unforeseen events.

Medical Insurance: Comprehensive coverage for your family and parents is essential. Review policies to ensure they cover rising medical costs and offer cashless hospitalization. Given the rising healthcare costs, having adequate medical insurance is vital to avoid financial strain.

With healthcare costs on the rise, having comprehensive medical insurance is crucial. Ensure your policy covers critical illnesses, hospitalization, and offers cashless services. This reduces the financial burden in case of medical emergencies and ensures quality healthcare for your family.

Retirement Planning

Aiming for Rs 60 cr by 55 for a Rs 5 lacs monthly income is ambitious but achievable with disciplined investing. Here’s a strategy:

Diversified Portfolio: Maintain a mix of equity, debt, and alternative investments. As you approach retirement, shift towards safer investments. This approach ensures that you continue to grow your wealth while minimizing risk.

Diversifying your portfolio across different asset classes helps in managing risk and optimizing returns. As you near retirement, gradually shift towards safer investments like debt funds and government securities to preserve your capital.

Regular Reviews: Regularly review your portfolio with a Certified Financial Planner to stay on track. Adjust based on market conditions and life changes. Regular reviews help in staying aligned with your goals and making necessary adjustments.

Financial markets are dynamic, and regular reviews ensure your investment strategy remains relevant. A Certified Financial Planner can provide insights and adjustments based on market trends and your changing financial goals.

World Tour and Lifestyle

Planning a Rs 5 lacs annual expenditure for a world tour is wonderful. Here’s how to manage it:

Travel Fund: Create a dedicated travel fund. Invest in liquid funds for easy access and moderate returns. This ensures that you can enjoy your travels without impacting your long-term investment goals.

A dedicated travel fund ensures that your travel plans do not interfere with your long-term financial goals. Liquid funds offer moderate returns and easy access, making them ideal for short-term goals like travel.

Minimalist Lifestyle: Your minimalist lifestyle helps save significantly. Continue this approach, focusing spending on experiences and essentials. This frugal approach will help in saving more and investing wisely.

A minimalist lifestyle reduces unnecessary expenses and allows you to save more. By focusing on essential needs and experiences, you can enhance your savings and invest in growth-oriented assets.

Final Insights

Your financial planning is commendable. Balancing risk and return is key as you approach 40. Here’s a summary:

Diversify across equity mutual funds, debt funds, and safe instruments like PPF. This diversified approach ensures a balanced risk-reward ratio.

Continue your SIP strategy and reinvest rental income wisely. SIPs help in rupee cost averaging and disciplined investing.

Prepay housing loans to reduce interest burden. This saves on interest costs and reduces financial stress.

Maintain adequate insurance and emergency funds. Adequate coverage and an emergency fund provide financial security.

Regularly review your portfolio with a Certified Financial Planner. Regular reviews help in staying on track and achieving your financial goals.

Your disciplined approach and clear goals are your strengths. Stay focused, make informed decisions, and your financial future will be secure and prosperous.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in