I am 39 and my wife is 36. Both at a good position and in a stable company with minimum 15 to 20% increment. Our earning is 7 lacs per month. Have 5 properties worth 8-9 crores. Have ppf with 1.5 lacs per year for us as well as our 2 kids (1.6 years and 10 years. Their pof started when they were 2 months).
I have 20 lacs in equity shares too. No loans or emis to pay. We plan 2 international trips per year and want to continue it.
We both plan to retire by 50. Any suggestions on investments or how we are doing?
Ans: Evaluating Your Financial Position
You and your wife are in a strong financial position. Your monthly income of Rs 7 lakhs and your investments indicate stability and growth. Your ability to manage without loans or EMIs is commendable.
Investment in Properties
Having five properties valued between Rs 8-9 crores is significant. While property investment has its advantages, liquidity can be an issue. Selling property quickly for a fair price can be challenging.
Consolidating Equity Shares
Holding Rs 20 lakhs in equity shares shows an interest in the stock market. However, managing individual stocks requires time, knowledge, and constant monitoring. Market volatility can impact your returns significantly. Consider consolidating your equity shares into equity mutual funds. This will provide professional management and diversification.
Public Provident Fund (PPF) Contributions
Contributing Rs 1.5 lakhs per year to PPF for you and your children is a prudent move. PPF offers safety, tax benefits, and decent returns over the long term. It's good to continue this disciplined investment approach.
Actively Managed Equity Mutual Funds
Equity mutual funds managed by professionals can offer better returns. They can help in achieving your financial goals. The expertise of fund managers can mitigate risks associated with market fluctuations. Actively managed funds often outperform index funds due to active portfolio adjustments.
Disadvantages of Index Funds
Index funds follow the market index passively. They do not react to market changes quickly. This can lead to missed opportunities during market fluctuations. Actively managed funds, on the other hand, can take advantage of market trends and opportunities.
Benefits of Investing Through a Certified Financial Planner
Investing through a Certified Financial Planner (CFP) offers personalized advice. CFPs can help in aligning your investments with your financial goals. They also offer ongoing management and adjustments to your portfolio. This ensures that your investments stay on track with your objectives.
Disadvantages of Direct Funds
Direct funds might seem attractive due to lower costs. However, they require a high level of financial expertise and time. Without professional advice, there's a risk of making suboptimal investment decisions. Regular funds through a CFP provide guidance, regular reviews, and adjustments.
International Travel Plans
Your plan for two international trips per year is achievable with careful financial planning. Setting aside a specific travel fund will ensure that your travel plans do not impact your long-term investments.
Planning for Early Retirement
Planning to retire by 50 is ambitious and requires disciplined saving and investing. Ensure your investments can provide a steady income post-retirement. A CFP can help you design a retirement plan that aligns with your lifestyle goals.
Insurance and Investment Policies
If you hold LIC, ULIP, or investment-cum-insurance policies, consider reviewing them. These policies often offer lower returns compared to mutual funds. Surrendering these policies and reinvesting in mutual funds can provide better returns. However, ensure you have adequate term insurance to cover your life insurance needs.
Children's Education and Future Planning
Investing in your children's future is crucial. Continue with your PPF contributions for them. Additionally, consider starting a Systematic Investment Plan (SIP) in mutual funds for their education. This can provide substantial returns over the long term and help in meeting education expenses.
Diversifying Your Portfolio
Diversification is key to managing investment risks. Alongside equity mutual funds, consider investing in debt mutual funds. Debt funds provide stability and lower risk compared to equities. A balanced portfolio with a mix of equity and debt can optimize returns and reduce risk.
Emergency Fund
Maintaining an emergency fund is crucial. This fund should cover at least six months of your living expenses. It provides a safety net during unforeseen circumstances like medical emergencies or job loss.
Regular Review and Rebalancing
Regularly reviewing and rebalancing your portfolio is essential. Market conditions and personal financial goals change over time. Regular reviews ensure your investments remain aligned with your goals. Rebalancing helps in maintaining the desired asset allocation and risk level.
Tax Planning
Effective tax planning can enhance your returns. Utilize all available tax-saving instruments under Section 80C, 80D, and other relevant sections. A CFP can help you in optimizing your tax liabilities and increasing your net returns.
Setting Clear Financial Goals
Clear financial goals provide direction and purpose to your investments. Short-term goals like international trips and long-term goals like retirement and children’s education should be defined. Having a clear timeline and financial target for each goal helps in systematic planning and investment.
Utilizing the Power of Compounding
Start investing early and regularly to benefit from the power of compounding. Compounding helps in growing your wealth exponentially over time. Consistent and disciplined investing is key to achieving your financial goals.
Understanding Risk Appetite
Understanding your risk appetite is crucial before making investment decisions. Equity mutual funds are suitable for investors with a high-risk tolerance. Debt funds and PPF are suitable for those with a lower risk appetite. A CFP can help in assessing your risk tolerance and suggesting appropriate investments.
Achieving Financial Independence
Achieving financial independence requires a well-thought-out plan. Your aim to retire by 50 is achievable with disciplined saving and investing. Ensure your retirement corpus can sustain your lifestyle post-retirement. A CFP can help in calculating the required corpus and planning accordingly.
Professional Guidance
Professional guidance from a CFP ensures that your investments are well-managed. They provide insights, regular updates, and adjustments to your portfolio. This helps in optimizing returns and achieving your financial goals.
Financial Discipline
Maintaining financial discipline is crucial for long-term success. Regular investments, budgeting, and avoiding unnecessary expenses contribute to financial stability. Stick to your financial plan and review it periodically.
Final Insights
Your current financial situation is strong and promising. With strategic planning and professional guidance, you can achieve your financial goals. Consider consolidating your equity shares into mutual funds for better management. Regular reviews and rebalancing of your portfolio are essential. Investing through a CFP provides personalized advice and professional management. Continue with your disciplined approach to PPF and ensure adequate insurance coverage. Planning for your children's future and maintaining an emergency fund is crucial. Focus on diversification and effective tax planning to optimize returns. With a clear financial plan, you can achieve your goal of early retirement and financial independence.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
