Investment strategy review (Long term)

Q&A: Questions & Answers Portfolio Q&A
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Hey everyone. 21 yo. New here and to investing in general. Started last week only. Amazing community with intellectual folks. Learning a lot. Not sure if MF are discussed here. I have done some research and here are my investment plans. Long term plans. End goal is long term investing (10-20 years and then continue from there as long as I’m alive basically). This current plan I’m planning to use till I turn around 30-35 (around 8-13 years) so I can use investment as a passive earning. Will keep on increasing it as my source of income increase. As of now investments are around 30k pm. Here is the plan:

High Risk

13k total

In this 13k: (10k small cap funds 3k stocks)

6k sip → small cap fund. What I picked: Nippon India small cap fund direct growth (so 6k pm). Looks safe. Decent returns since 2013.

4k sip → Another small cap fund. What I picked: Quant small cap fund direct plan growth. Looks safe. Early returns weren’t good but from what I found out it got acquired post 2020 and since then it is giving some of the highest returns. Still not as safe as Nippon from what I concluded.

3k monthly → My own investment on stocks that I’ll learn. Here I’ll make a lot of mistakes hence the highest risk and lowest investment.

Will keep on increasing the above as my source of income grows.

Low risk

(17k total)

Should be super safe. Something like FD with sip if I might say. Returns aren’t the biggest priority here safety is but will be better if they can be maximised. Here, Liquid funds look promising as I can have sip there with good returns for the negligible risk they provide (same as FD though maybe a little better) but not sure if they’re the best option as they hardly beat inflation. Please let me know if there are any better options than liquid funds. Again I want almost the safest but something liquid for this that I can withdraw in case of emergency + the profit (if possible as I’m not sure if that happens). That’s why maybe fd will be better for this but they require a lump sump instead of sip.

For this will probably divide onto 2 parts again (7k for some safe investment and 10k for another safe investment but can be made liquid in case of emergency like liquid funds)
What I picked: 7k on Invesco india arbitrage fund direct growth, and 10k on liquid funds as to me it looks like that’s where only I can turn it into liquid in case of emergency not sure if it’s good for long term investments I have heard index funds like icici nifty 50 can be better or some flexi cap fund like parag parikh flexi cap but they are mentioned as high risk in various places with no liquidity option)

Please review my investment. Let me know if I am making any mistakes here I’m really new to this and wanna invest at least 30k pm. Apologies if something mentioned above isn’t correct.

Thanks!!

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Hi Tushar,
There are a few things that concern me but I would like to understand a few things before proceeding.

  1. How did you decide the allocation % as 17k / 13k? Why not 12k/18k -or- 10k/20k?
  2. Continuing along the same lines, how did you get the numbers of 6/4/3k for SIPs?
  3. You wrote

a. What is the objective here? What’s driving the need for safe investment?
b. What do you mean by safe here (zero volatility? low chance of capital erosion? else?)?

Imo, this could be a very contradictory statement. If looking for a safe investment then one needs to give up the return expectation. Further, if your largest allocation is looking for safety, you must have a reason. What’s the reason? What’s driving this? From the information you have shared, this part is not clear.

Further, this contradicts your entire approach. On one hand, there is something that is causing you to put ~55% of your PF (17/30k) in safe investments. On the other hand, you seem unconcerned in erasing 10% of PF (3/30k). It’s okay if you want to learn, but in that case, 3k can’t be considered as a part of the PF since you’re going to lose it (analogy: you invest in college tuition fees to learn but would you consider it as a part of PF?).

I am assuming your risk appetite is towards the lower end but you’ll need to clarify it. There are several ways to measure it and I suggest that you spend some time reading more here.

I am not a SEBI registered research analyst or an institution. I am very hesitant to comment on the selection of the funds. I do feel that for a risk-averse investor, there can be better spaces than small-cap funds but then again it’s very difficult to comment on anything without understanding your profile and needs that are driving your investments.

The allocation strategy imo should be very person-specific. One can start from a random strategy but with time, it could get very difficult to practice (and sometimes optimize it)

In general, there are several ways to allocate. The ones that I find easy to practice are:

  1. Goal-based
  2. Ambition based (I forgot the exact jargon here)

For goal-based, you first define the amount of capital you would need in the future and then back-calculate your investments making some realistic assumptions on the returns.
For ambition-based, the goal is to maximize returns. One doesn’t have a target in mind but looks to mix and match the best combination of his risk appetite and returns.

Disclaimer: I am not a SEBI registered research analyst or an institution. These are my personal views. My views keep on changing with learnings and time and I often go wrong.

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Hi, thanks for the reply. I’m still learning so please feel free to let me know if anything I said isn’t correct or there’s a better way. I’ll try to make an explanation to everything on why I’m doing it.

P.S. I have made some investments just for ‘learning’ purposes in the last week. 5.3k of stocks in total to be precise. Mostly the bullish/popular ones like IREDA, IRFC, HDFC. I just invested as by doing so I was actively thinking about it instead of just say learning which in turn motivated me to actually become worried and actually learn more on weekends or stay up to date with the news. That’s the only ‘real’ experience I have at the time of writing this.

The percentage allocation is not something fixed. I will probably make some changes to that when I start investing monthly like I mentioned in the post (probably in a month or so will learn till then). It’s just what I personally came up with.

a. The reason for safe investments, as of now, is to minimise risk. Again, from what I have found out so far the high risk mutual funds I mentioned (like nippon) seems safe in long term (5+ years and I’m aiming 10+) with amazing returns but initially I would like to put my money where there is least fluctuation and returns are consistent. Maybe for the first year of my investment journey. I think it’s mostly because I’m a beginner and will probably change the approach soon as I learn more about how market works.
b. By safe I again mean with the least variation. For ex I mentioned Invesco india arbitrage fund direct growth as an example as you can see the growth for this one is almost linear since 2013 so I consider it a ‘safe’ investment.

For 3k I just added it for reference purpose. Yes, I don’t think it will add any value to say my PF. Again, might be out of context question but by PF you mean something that ‘I’ am investing. Right? I do have an EPF account but my current company doesn’t support and PF scheme. I am assuming you’re referencing the long term (say retirement) investments ‘I am’ making as PF.

For allocation strategy I think I’m a mix of both. I do have a number in mind. Say rough 1-2cr in investment before turning 30 (8-9 years for me) and push it to 5+cr before 35. Again, these numbers I’m estimating with only some sip calculation I did in the last 2 weeks. It seems pretty much doable as I will increase the SIPs a lot in future as I don’t like spending a lot of money. Probably 60-70% will stay in my savings account anyways so will be better to invest it. But the investment should do at least 12% CAGR for 10 or so years as I’ll keep on increasing the SIP as I increase my source of income.

Some are suggesting me to start small. Say, invest 10k pm in total in mutual funds (divide in 4 types of fund 2 small cap, 1 index, 1 mid/large cap) and say 2k (separate from the 10k) in stocks for learning the market.

The main thing that is motivating me for investing in general is compounding. The early I start the better it is. Hence why even the 10k that I mentioned in the last paragraph will be a great investment in long term. Even a year will make a lot of difference in long term because of compounding. Hence, my main focus is to start as early as possible with the highest returns as possible.

Again, I’m still pretty new so some of this might be incorrect so feel free to point that out.

Thanks!

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You said that “…will probably change the approach” so I think it’s too soon for me to comment/evaluate something. Plus, you seem to have just started so I don’t want to be critical.

From a broader perspective, I can suggest the following:

1. Luck and Skill are two different things
There has to be a rationale for the decisions you make. I am not able to find a rationale in your allocation or investment choices. Casual decision-making leads to casual outcomes. If it’s a casual choice, then you need to be ready to live with the consequences when things go wrong.

2. Past performance does NOT guarantee future performance.
I do not track Invesco so do not what’s going on there. Your expectation about linear returns tells me that you need more time in the markets before I can advise. A few years back, a large bank that seemed to give consistent returns for years has been now going through a price correction.

3. Safe assets are NOT for return maximizing.
Maximizing returns will bring risks. I used to try to maximize returns on debt investments and was lucky to learn early why not to do it. Perhaps, you will have your own lessons.

Try understanding the Franklin saga and why Investors got locked in the popular fund.

4. Choosing your teachers

This again is quite concerning. Not talking about the quality of their advice but the advice-seeking process. In general, you need to choose people whom you want to learn from.

5. Portfolio Construction
When I said “3k can’t be considered as a part of the PF”, I meant that I would consider its value to essentially become zero. It might never reach there but there are reasons why I would consider to be 0. You can read about “portfolio construction”.

6. Maths.
The numbers don’t add up. From 1cr to 5cr is 5x in 5 years. That too, when you’re starting with 55% of investments in safe investments.

Given your age, your income might increase with time but then it’s generic information since I do not know the growth trajectory (for example: how much % increment, frequency of increment etc).

Plus, you’ll need to consider the fact that your expenses will likely increase. Also, there can be unpredictable circumstances - say health emergencies. Think of people dependent upon you. There’s a lot more to this. Once again, I think you should read about “portfolio construction”.

If I have to review your approach currently, I would say there are several shortcomings. But I do believe that it doesn’t matter where one starts from as long as we end up right. Further, sometimes we need to burn our hands to understand fire. As long as one keeps on introspecting and working on themselves, one gets there.

Disclaimer: I am not a SEBI registered research analyst or an institution. These are my personal views. My views keep on changing with learnings and time and I often go wrong.

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Thanks. This was a good read. Definitely looks like I still have some homework to do. But the main thing that’s concerning me is the money that I’m earning right now is being stored in my savings account and is getting inflated as we speak. That’s why in the mean time I wanted to invest it somewhere.

Will spend some more time learning and reading portfolio building topics and will probably make some better choices then.

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Welcome to the forum. You are in the right forum at a very young age, that is good.

There is no safety in equity, even with MFs. MFs too lose money, the NAV can fall by 20%, and if we don’t want to sell, then we have to wait for longer periods. Better to have a number in mind and time period in mind, because it is volatile, there is no compounding here, the returns are not linear, they are volatile, it goes up and down, what good it is if we want to withdraw and the NAV is the same as 2 years ago, because it has fallen and not yet moved up. Direct equity is an ocean, so it will take time.

Go through freefincal.com for MF related things, it helps.

Invest in debt, if you are concerned about return and safety. And if you think of emergency, split the investments into different products, along with a debt fund, you can go for RDs, keep some in the bank account, keep hard cash too, because in emergency, liquidity is important, we will need cash. With debt funds, there could be limits for instant redemption, and redemption requests may take 2-3 days.

In the initial years, keep it simple, don’t think about returns and focus on learning. And as time passes, with the gained knowledge, and with the capital from your profession, you can do a lot of things, so focus on your profession too.

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Hi Chaitanya, thanks for your reply. This was really helpful. I wasn’t aware of RDs. They look like what I was searching for. Can invest them in the mean time till I learn more about investment :smile:

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Hi Tushar, Welcome to the Forum!!

First of all, I would like to mention do not run to invest in everything/every investment product eventually you will end up creating a mess & it will become very difficult to track so many things with very less allocation. According to me start from 1 thing keep minimal so that so that you have proper knowledge of that one product, and you will also have the real taste of that product also with good allocation which will keep you motivated to read and study about that 1 product regularly, give that 1 selection some time (Don’t be in a hurry which can be seen like you want to invest asap , You are thinking money is getting inflated in Saving bank.)

Secondly you are trying to take best of everywhere i.e. best return with safe products which is not practically possible. You will have to choose 1 return or Safety. (Not a recommendation because I don’t know about your background and financial position but at such a young age one should choose Calculated risk)

Every product has a characteristic & nature which should be kept in mind before deciding it is suitable for you and if that aligns with your requirements, Expectation You should jump into the product only when you have knowledge i personally know a lot of people who started with a lot of enthusiasm but have lost money in market.

Lastly on this amount expectation you should calculate the return on total portfolio not like the highest %. According to what you have mentioned 55% in safe instrument & 45% in MF +Equity you will be making about 9-10%

Disclaimer: I am not SEBI registered & have a limited knowledge about your background & income. All the above mentioned is based on my personal understanding, please think twice before taking any financial decision at the end your hard-earned money is at stake. My views may change with time.

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Hi Naman, apologies for late response was travelling for the last couple of days.

Yes, that’s my plan but the issue with me is I’m not sure where to invest as of now. I’ve done research but I’m not sure what’s that ‘one thing’ that I should start with. Equities can give the highest return (which to be clear is not what I’m aiming for just even some good annual return of 12-15% will be a good start for me) but they require a lot of research + you have to stay in track. Which is a good thing as you learn a lot. But again, as others said boosting my source of income should be my priority and I get only 2 days a week for working on that along with learning about the places I have invested in. So, it’s not possible for me to give so much time to the equities I have invested on. In the mean time I wanted to invest on ‘something’ which is ‘safe’ and can give at least somewhat compounded interests. Higher the better but at least 12-15% is what I’m aiming for. Say something like mutual funds. Because time is the biggest factor when it comes to investing. I read this story and it was quite fascinating to me that how much time impacts investing. Hence I’m so worried about investing early and my money being inflated. Though I completely agree with you that people make mess when they are in hurry hence I came to this amazing forum where I can learn from amazing folks who know a lot more than me. I just need to find that ‘one thing’ in which I can get started. So far index funds look good and ‘safe’ along with some small cap funds (at least in long term with good returns) but I have heard news that currently we are going through a bull run so it might go down soon nothing a long term investor needs to worry about but what if the mutual funds I invested in went down with it. That’s why where to start is confusing me a lot. If I found it. I’ll probably invest an sip on that of less for now (say 5k per month) and keep on increasing it on yearly basis to a higher monthly sip which meets my set money goal according to the give time period I have.

Thanks!

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Inflation nibbles savings. Wrong investment devours it.

Imo you should take time to understand your needs, investment profile, and actions. Something doesn’t seem right (but this is my POV and I am naive).

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Don’t think of inflation, time or returns, focus on your profession and then on gaining knowledge. A lot of things impact investing, not just time. Capital, risk, returns, market cycles, liquidity, even luck.

If you want to participate, and want to see your investment grow with time, start with a debt fund, not to redeem soon, but invest until you reach a point where you are confident enough to go forward into equity. If there is a chance of withdrawal too, go with a RD. There is a bull run going on, so 12-15% return looks normal, it is not. Liquidity is a major factor in taking the prices up, if that runs out, even 8% will look wonderful, hence no compounding in itself, unless you are doing it yourself.

If you go with equity, you can go with a conservative hybrid fund, which has more debt and some equity, the NAV could fluctuate, you get used it, and you can do this for a year and check your progress and experience.

As time is on your side, you don’t have to hurry.

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Hi Chaitanya, thanks for the input. I think I’ll possibly start an SIP of RDs. I have heard Debt funds after tax are pretty much equivalent to FDs so some folks say it’s not worth the risk comparing to FDs which are probably one of the safest investment option. Again, can be wrong on my takes but I did some research and these are the things that I concluded. Also, learned a little bit more about Mutual funds on the weekends and yes non equity funds like debt funds feel a lot safer but given the returns being comparable to fds even for a long period of time FDs just feel better (or not??).

What about index funds though? As long as there’s something (god forbid) massive crisis happening like war, inflation, disaster, etc. they’ll most likely recover as they try to mimic the market and even if these things happen they go up pretty quickly. For example take the 2020 pandemic market was on bear mode but it did pretty good soon after that and here we are on the bull market. From what I have observed on previous bear modes is that market follows bear mode by a bull run if talking about long term say 5+ years. So, for long term are index funds a good option that I can start at this time also?

With all this I’m planning to go with this now:

Total investments = lowered to around 15k pm

Choices that I’m choosing now:

  • Hybrid funds (safe option with better returns than debt funds)
  • Index funds (as nifty will definitely give good returns in long term)
  • Flexi cap funds (high return and can do better in market compared to other small/mid cap funds and still provide good returns)
  • and safest of them all RDs.

Here’s how money is divided.

  • 3-4k on some index (or flexi cap) funds (long term won’t withdraw ever)
  • 3-5k on some hybrid funds (feels safer than index funds as they also invest on non equity options)
  • 7-8k RDs (can be withdrawn in case of any emergency)

will obviously make changes to these as I gain more experience and knowledge.

Thanks!!

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My suggestion would be not to take a long term view for now, as everything could be different to now. Take a 2-3 years view, and go as per your risk appetite, and you don’t have to diversify in the asset class again, considering you are just starting and have capital constraints.

RD is debt, so pick something in equity, even hybrid funds will fall and stay there if market falls, so hybrid funds can be considered as equity just like flexi or index funds. RD will increase in value, equity will go up and down, after some time, you can change or modify these as per your understanding and requirements.

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