Friday, 3 April 2015

How to Retire Early : Equities, Equities and More Equities

If you have been reading early retirement blogs regularly, and researching the web and books for strategies to achieve your early retirement goals, you must be very clear in your mind that saving a large enough corpus for early retirement is a very daunting task.  

In India, and I am sure pretty much everywhere else in the world, saving enough just for a regular retirement wherein you retire by 60 years, is tough enough.  Amassing wealth at a faster pace, so you can accumulate a sufficient corpus at a younger age, and leave the daily grind of the corporate work force, is a mind boggling challenge.  

I have written before on this blog about the need to save as much as possible, as a percentage of your take home income.  However, I am also looking for ways to increase my return on investments, to accelerate the rate at which my total corpus grows.  For this, during the accumulation phase of my career, during which I am saving as much as possible, and investing as aggressively as possible, I am putting almost all my bets on equities.  

Of the various investments avenues available to me, debt is clearly not the way to grow your wealth. Debt investments at best can provide steady income, which I am not looking for right now.  Debt may also provide a way to maintain your wealth to some extent, but will certainly not be able to increase it.

Real Estate is another possible option, but I am not a huge fan of real estate as an investment option. There are several positives to real estate investments, but they come coupled with several challenges as well.  I am just not particularly adept at navigating all the real estate investment challenges, so though I own some real estate (residential) I am not really counting on it for networth growth

So that pretty much leaves me with equity as the only remaining main stream investment category, and I heavily invest in equities to hopefully reach my early retirement goals.  Between my mandatory EPF contributions through my company salary, my PPF that is maxed out every year, some small tax free bonds, and the debt component of my balanced equity MFs, I have all the debt investments I need at this time.  Every other Rupee that I can find, I invest in the Equity Markets.  Most of this is channeled through MFs, since I find them most convenient to invest in.  Some portion goes into direct equity through stock picking (though I am not very good at it)

In summary, I have greater than 75% of my current networth invested in equities.  I realize that this is a relatively high risk strategy, and at some point I will have to cut down my equity exposure. However, during the accumulation phase, this is the best way to beat inflation, and grow my corpus at the fastest pace possible.  I have reviewed several other early retiree aspirant portfolios, and the common theme has always been a high proportion of equity or real estate exposure.  I find the equity route more comfortable, so that's what I do.  What is the equity exposure you are comfortable with?  

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