Posts in category "financial-planning" - page 5
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How I Funded Purchase Of A New Car
If you have been following my past few posts, you already know that I purchased a new car. You might also recall that the budget I set for the new car was Rs. 6 lakhs. In this post I want to answer some of the questions that might be popping in your mind including why I have a specific budget and how I funded it. I have just one portfolio which is my retirement corpus. I don’t maintain different portfolios for different goals, because I only have one goal which is to stay retired for ever :). The retirement corpus is supposed to fund all expenses in my retirement. It could be any monthly expenses like food, petrol, electricity, kids expenses etc. Or it could be some big annual expenses such as buying a car or painting the house etc. If you want more details, I suggest you follow the links above and read about my expenses first. I explained everything in detail.
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Is It The End Of 4% Rule Then?
I have written so many articles on 4% rule, that it feels like I can make a living by just writing about it. Yet we keep coming back to it because times have changed, or may be the 4% rule does not work in Indian context or because it may not work during recession and what not. The latest in this saga is this article I read a few days ago. Without going into too many details, the article suggests that a new research found that the 4% spending rule may be too high and we should probably go for a 1.9% rule instead. That sucks. I made my whole early retirement planning based on the 4% rule and it seems like I may be doomed.
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Inflation Is Hurting The Stock Market
Inflation is always bad news. This is nothing new anymore now is it? I have already written several posts about inflation in the recent past. Generally it affects your expenses, but when central banks decide to fix it, your investments also take a hit. Take the case of FED and US stock market. First the FED printed way too much money and the government handed free checks to everyone during COVID-19. At the time it seemed like a good idea. Later, when the FED wanted to stop printing, it could not because, well, socialist activities are hard to discontinue. Moreover the stock market would get spooked every time they even mentioned quantitative tightening, let alone interest rate hikes.
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Retiring In A Bear Market
I already wrote a bunch of posts about 4% rule on my blog. Most recently I explained how early retirement might work during a prolonged recession. You have also seen how 4% rule is working out for me. Then there is that topic about whether 4% rule actually works in India given the high inflation, which we found out might actually work better in India. But then why should we stop the discussion there? Let us talk about retiring in a bear market. Actually I am not going to do any analysis, but will just point you to an interesting article I read recently.
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Franklin Payment Is Now Complete
If you did not already know, I had a bunch of investments in Franklin Ultra Short Term Fund. At one point, I had as much as 50% of my fixed income invested in it. However, my asset allocation being almost 80% in fixed income at that time, my exposure to this specific debt fund was almost 40%. Now imagine how it would feel like to know that Franklin has decided to wind-up the fund? I was not worried that I will lose the money, but the problem is that most of my investments are now illiquid. The whole point of investing in mutual funds was for the liquidity.
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4% Rule In Indian Context
I have already written a few posts on 4% rule, but some readers were not sure if it really works in Indian context. We don’t have the equivalent of the Trinity study (which resulted in the 4% rule) done here in India. Or at least I am not aware of one. For those of you who don’t know the Trinity study, I will brief you on it. Basically the study found that if you withdraw 4% from your retirement account every year after accounting for inflation your retirement fund should last 30 years or more. But the study was done in the US using bond, inflation and equity market data from 1925 to 1995. It is really not a rule as much as a thumb rule. While I don’t have the luxury of such nice data for India, in this post, I will attempt to use some crude data loosely based on the same notion.
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Correction, Bear or Recession?
We are going through some exciting times in equity market. It has been dropping for the past few weeks and media has opened up the discussion of possible recession. I say, we are no where near recession yet. I might agree to the fact that this is near the start of a bear market. Any drop in the market you have been experiencing in the past few weeks or even months is just a correction at best. Of course there are no proper definitions for each of the terms – correction, bear and recession, but there are some generally accepted ones. So we just need to check the definitions and see where we are in the market cycle.
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Momentum Or Contrarian?
There are many investment styles, but I am generally in conflict with momentum investing vs contrarian investing. Sometimes I feel like I should be following the momentum style of investing. And most other times I feel like I should be a contrarian investor. If you don’t know those two different styles of investing, don’t worry I will give an explanation. Sometimes momentum strategy works better and at other times a contrarian style works better. Knowing which will work better at any given time is all together another difficult task. I am not really sure which one works best in the long term though.
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Financial Independence Trend
There has been a sharp rise in the F.I.R.E. trend in the recent past. For those who don’t know, F.I.R.E stands for financial independence and retire early. It is the new fad in town which I am also part of :). In the past, people searching for financial independence used to trend around 20 queries a day on Google search. It has more than tripled if you look at the data from the last one year. I wonder why so many are looking for financial independence. Perhaps COVID-19 and the resulting work from home culture are to blame. Or may be the sudden rise in wealth because of the recent stock market bull run is the cause. I have no idea, but people seem to be more interested in F.I.R.E in the recent past more than before. Or at least that is what Google trends is indicating.
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Impact Of Repo Rate Hike
In the previous post we discussed about inflation and how it can be tamed by central banks. One of the ways to reduce inflation is by reducing the amount of money people spend. This can be done by increasing the rate of interests on loans or by making safe investments so attractive that people will save money in banks instead of spending on things. Think of it this way – if your home loan EMI increases, you will have less to spend on other things right? Alternatively, suppose you don’t have any loans, but you are a saver. Then if the FD interest rate went up from 5% to 6%, you might save more instead of spending and causing inflation. That was a very simplified explanation of course, but lets just go with it.
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