What do I see in the real world? # retirement planning

When you read a lot of material on retirement planning, financial independence,personal finance, etc- You actually end up being scared ( At times, Your fear is used to sell unnecessary products to you),

Not deviating from the topic , the intention of the post is not to say whether you have to do your retirement planning or not!. But to present some real life cases of retired people that I have seen in my circle..( No inferences or lessons learnt at the end..:-) )

 1. Mr. R

 Mr. R was working in a industrial estate in late 90s. He had migrated to metro city for a living. His salary was low and was only enough for a hand to mouth existence. So, there was no question of making any investment. 
During the recession of late 90's , he lost his job ( around 50 years of age). There was no real "financial settlement" from the company when he was laid off.
His son was around 18 years of age at that time and managed to get government job  which coincided with Mr. R's job loss. Mr R has been doing some odd jobs from then on. But his Son continues to do well and supports his father.
Mrs & Mr. R continue to live with their son. 

 2. Mr. S

Mr. S is 96 years old now. He retired almost 4 decades earlier. Didn't have any real savings at the time of retirement ( No house, No financial asset). But he is well supported and taken care of by his children ( who are actually senior citizens now!),
Mr. S depends on  his children and grandchildren for his small indulgences.
Mr. S continues to live with his son.

 3. Mr .L

Mr. L worked in private sector. He got an house constructed during the fag end of his career. The retirement settlement that he got was only enough to pay for the home loan and pay off wedding loans (daughter).
Mr.L continues to live in the house built by him. His children continue to pay a token pension for Mrs & Mr L month on month. 

 4 .Mr. N

Mr. N worked for the government and had built an house in a suburban area during his mid age. His investments were primarily in FDs and in Post office instruments.His retirement benefits also went into Post office instruments.
Mr. N gets an inflation indexed pension from the government. Mrs. & Mr . N live using the pension (Manage to save some portion of it) and they are not really dependent on their children for their basic needs.

5. Mr . P

Mr. P worked in a senior position in a private sector. Had purchased a few plots and some blue chip shares ( they were not blue chips when he bought them) apart from his primary residence with the savings. ( Mrs. P was also employed). With the Equity/real estate boom of 2002-2008, his net worth shot up and was able to make some decent profit .
Mrs & Mr.P comfortably live in a suburban villa. Mr. P continues to hold some of the investment he made during the mid 90s.

Are equity oriented balanced fund safer bets??

Based on valueresearchonline screener, I filtered the top  "Equity oriented balanced funds" and top "Equity funds excluding sectoral funds" based on last 10 year returns as on 15oct2015. Here are the results.

Considering the risk reward proposition, I think Balanced funds are safer bets ( as they are should supposedly be a able to give a better downside protection, apart from automatic asset allocation benefits between debt and equity plus same tax treatment as equity funds).

The returns from equity funds don't seem extremely superior to balanced funds. My take- unless we see a 2003-7 kind of a bull run, the performance differential between these two categories may be minimal. In a downward/ side ward market, balanced funds might even do better!

# Note:- This is not a recommendation to buy balanced funds. Investors are supposed to consult a financial advisor or do their own research before investing. Past performance of funds cannot be extrapolated to the future ! :-)

Thank God it's Monday #TGIF

Yes, you read it right - Do you thank God on mondays??.

I attended a talk in a professional forum today, it was on the topic "Holistic workplace".During the presentation, the speaker quoted some survey that said 66% of the employees around the world are "disengaged" and are not happy to go to work.( Rest 34% ,would be those who had miserable lives outside office and would have preferred devil over the deep shit, I thought :-) )

Coming back to the topic,I have had at least 10 -15 people who had told me over the  last couple of years  that they hated the job like hell. At least 60% of them had HUGE portion of their net pay being paid as EMI ( Car loan, Home loan, EMI for the latest gadget, personal loan to buy an unapproved plot, etc,etc). The latest conversation I had on EMI ...
(EMI = Easy Money from Idiots for the business people)

Ms. J: Hi IM

Me: Hi, How are you doing

Ms.J: Just finished a meeting with the CFO, he was all rude. Once I complete the Home loan EMI ( around 60 lakhs) outstanding, I would quit this job and mostly stop working thereafter.My husband's income is more than enough for us ( except for the loan)

Me: Oh is it??

Ms. J: True

Me: How much is the house worth?

Ms. J: 1 crore 

Me: Then why don't you sell that house ( where Ms J doesn't stay and it was fetching 15k ( EMI  > 60 Kpm) as rent per month- she never ever plans to get there), Short close your loan, Invest 40L which will provide you a monthly income if you need or let it compound.

Ms. J : Oh no! that sounds like a stupid idea. I will loose rental income, tax benefits, appreciation, blah,blah, blah...

Me; Fine , then why you feel that EMI and loan is a burden then?

Ms. J: Oh shit, I forgot ... I need to run to a meeting.

If you are a shareholder of a GOOD bank that lends to retail, you can very happily proclaim- "Thank God , it's Monday" . #TGIF. 
What constitutes a GOOD bank is a bigger story :-) and would need to write a book on that!!

Things I wish I had known 15 years back!

( Warning :- This article is loaded with  "Hindsight bias")

I have been an avid saver and investor over the last decade. I have immensely benefited from my saving and investment habit. Looking back, I think I could have done better in these areas. ( Not an exhaustive list but the things that are on top of my mind at this point of time)

1. I should have "fully loaded" my  PPF  account from first year.

I opened a PPF account 15 years ago( good decision). But I didn't fully invest into it every year. During the initial years, I kept PPF account active by doing some minimum investment. NSC or ELSS was my preferred choice for parking the money. The reason being "15 years in PPF" looked "too long " for me.
I probably didn't understand the power of compounding and also that PPF is more tax efficient than NSC.
This mistake was corrected a few years back and now the PPF account is extended for the next 5 years :-).

2. Choosing growth option in Equity fund.

During initial investment years I thought , Dividends from equity funds was the most efficient way of "profit booking"  a.k.a risk mitigation and it was better than growth plan. But didn't realize that in effect , dividends also broke compounding and selling units of growth option was the best way to book profits , if at all needed.

Now, most of my Equity MF investments are under growth option ( Direct plan- learn more)

3. Should have avoided more money in tax inefficient FD.

Bank FDs were my favourite investment to start with.
FDs are the least efficient way of investing for people in higher tax bracket. It doesn't help to beat inflation and no indexation benefit is available for FD investments.Having all your debt investments in FD is tax inefficient.

Of late, I use debt vehicles that defer taxation till withdrawal.

4. Having too many accounts.

I  used to open one SB account whenever I switched jobs and wanted to hold all the five star funds ! Attractive bank FD rate hoardings led to many banks for opening FDs.

Having too many accounts eother it be SB, FD, demat or MF folio makes life difficult for you. Simple is always better!

Realising this, started closing  many accounts and consolidating folios. Still some more work left here!.

Real estate debt levels #simply_scary

Real estate euphoria is slowly dying and the developers are facing some sort of difficulty- Most of us know this from the reports that we read.

Today, I happened to have a conversation with a person with a RE insider during my train journey and it was nothing less than scary!
  • One of the RE company is having debt up to Rs 1000 crores while the paid up capital as per books is below 20 crores( the actual capital got in by the promoter is far far less --- :-( , that should be another story)
  • The company has been using one bank debt to pay another cyclically and so on and they are managing this through their "contacts".
  • One famous private sector bank which is the darling of the stock market is keen on re-financing one of their loans on the condition that they will be the preferred partner for retail loans if and when they sell the flats. The logic being that retail loans seldom go bad!
  • Also got to know that the company had previously "pleased" a lot of people to get the loans.
  • Even if the company manages to sell all their existing stock and WIP at current prices, they will be able to manage only 50% repayment of the debt. 
Not sure what if the RE bubble burst, a few banks may actually go bust. ( But for all retail investors,Fixed deposit seems the safest investment ;-) )

NPAs from real estate and infrastructure sector can play out more differently than what we can predict.

Fingers crossed on what will happen and how stock market would play out eventually.

At least, I feel very very scared!!

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