Am I Saving Enough?

I had published this post a couple of days ago, based on a concept borrowed from the book "The Millionaire Next Door" about your expected networth or corpus at any given age.  The post describes how to calculate your expected networth assuming you save at a certain rate, and your investments and salary grows at a certain rate.  Since that post, I have got several queries from readers for their specific situations that I am doing my best to respond to.  One recurring question is around the annual salary assumption I have made.  Since different people have different salaries when they started, either higher or lower than my assumption in the table calculation, the common question is, how do I calculate my expected corpus for my salary situation.  

How Much Money Should I have Saved by Now ?

Ever wonder how much money you should have saved by now?  Or more specifically, what should your networth or total corpus be at this time?  I am sure as you are saving and investing for retirement or any other goals, you must be thinking, am I saving enough, and is my corpus growing at the right pace?  How am I doing compared to others?  If you have these questions, don't worry, you are not alone!  We all think about this every once in a while, I am sure.  

You must have heard about this book called "The Millionaire Next Door" that talks about, among other things, the concept of networth and provides a simple formula for how to calculate your expected networth over time.  Like most books, this one also is based in the US, for American readers, and hence the thought process caters mostly to their situations.  

However, the concept is definitely interesting, and something that I figured can be explored in the Indian context as well.  So here is my attempt to calculate the expected networth or corpus for the Indian context.  

Locking in Losses

We are in the last week of the Financial Year, here in India, and it is time for me to lock in any short term losses that I have incurred in my direct equity investments this year.  This is something that I routinely do at the end of the tax year, due to the way taxes are structured in India.  My goal is to lock in STCG (Short Term Capital Gain) losses, to either offset any STCG gains from this year, or from future years (since you can carry over STCG losses into the next year) Remember you cannot write-off STCG losses against salary income.  Also note that LTCG (Long Term Capital Gain) losses cannot be written off against STCG gains (They can be written off against LTCG gains, but then LTCG taxation on equity is NIL, so there is no real benefit)

Building Wealth One SIP at a time

The bulk of my financial investments are in equity markets, since I believe that is the best way to create and build wealth.  However, I suck at picking stocks, since I have little formal education in how to analyze companies, balance sheets, and business models.  Instead I rely on Mutual Funds to do all the hard work for me, and pick the right stocks.  

The cornerstone of my MF investment strategy has been HDFC PRUDENCE fund.  This is a hybrid or balanced fund, that invests upto 70% of its assets in equities and the remaining 30% in debt instruments.  You can look up websites like valueresearchonline.com to analyze fund performance, stock holdings, etc.  The bulk of the wealth creation for me over the last 10 years has been through HDFC PRUDENCE.

Inflation : Cost Inflation Index

Inflation is a well known "Retirement Killer".  Long term goals like Retirement, Children's Education, Children's Marriage, etc are highly susceptible to the ravages of inflation, since the long term nature allows for massive compounding of the ill effects of high inflation.

Cost Inflation Index is the fancy term that the Indian Income Tax Service uses to quantitatively measure inflation.  This is a reasonably good measure of inflation, since the Indian government effectively chooses to waive any taxes if your investment is growing in line with the CII.  There are many websites you can read up to understand how CII works.  In effect it says that if your investment grew at the same pace as CII, you will not owe any taxes on the growth, since the Indian government acknowledges that your "growth" is only notional and not real.  

Role Models : Financial Samurai

Here is a kindred spirit who blogs about his successful Early Retirement Journey.  The blog is called Financial Samurai and it covers Sam's journey from the financial industry into financial independence, and eventually early retirement.  

The blog again is focused on a US based retirement model, since the author is US based.  However, I still find several of the thoughts and strategy (if not actual tactics) to be relevant in the Indian context.  

It does sound like Sam derives some post-retirement income through work on his website, and royalties from a book that he has written.  However, for all practical purposes he is retired.

Read on, and derive encouragement from his story.  You are not alone!

Portfolio Strategy : Mar 20th, 2015 : Banks Battered

Since the beginning of this year, I have been placing my bets on banks, in the hope that interest rate cuts will help them to improve their balance sheets, resulting in higher earnings, and hopefully increased stock prices.  Unfortunately, after appreciating quite a bit in late January this year, the BANK NIFTY has gone through a period of high volatility, followed by almost daily declines in value over the last couple of weeks.  Here is the chart for BANK NIFTY this year

As you can see, returns have been practically flat for the 3 months of this year, after a torrid rally last year in 2014.  I have not given up hope as yet, but increasingly it looks like we will not see the bull rally of last year repeated this year.  The high volatility is good for SIP investments, if you catch the troughs in the chart for your SIP timelines.  

For now I intend to hang tough and see how things pan out in the rest of the year for the banking sector.

Retire Early : Why?

I occasionally get asked by my readers, Why I want to Retire Early? What is the hurry?  Why the rush?  Why would anyone want to retire early at all?  In my mind it is rather clear and actually obvious why I want to quit the rat race as soon as possible.  It makes perfect sense to me, why I would want to stop working on a regular basis, and spend my time as I deem fit.  However, I have never written a blog entry clearly articulating my reasons for wanting to quit the corporate rat race once and for all.  Recently a reader chimed in with the following: Why should some one retire early if you like the job earn enough, spend wisely and work without any pressure for 35-40 years? I was about to start typing up a furious reply to what I thought was a rather silly question, when I came upon this recent announcement from the Google CFO Patrick Pichette.  On March 11, 2015, Patrick decided to quit his high flying, lucrative CFO job at Google, arguably the best company in the world to work for, and retire for good.  I read through his retirement memo, and realized that he had written from his heart while explaining his difficult decision.  Read on to understand more about why Patrick took this drastic step.