Readers want to know: “I just started his SIP in a stock mutual fund. I plan to continue this for 15 years. Can I expect a 15% return?”
The honest answer is “I don’t know. Nobody knows”. We have covered this in detail earlier. Do not expect any income from Mutual Fund SIPs. Do this instead! Below is an updated graph related to the reader’s question.
Each point in the graph below is the revenue from 15 years of SIP at Sensex. Note that anything is possible. When the market crashes, so do SIP returns. If the market recovers, so will SIP revenue.
this chart
You can expect 10%, 12%, or 15%, but the market will give you what you want. Notice that many returns are less than 15% (red line). Returns have been below 15% for the last six years.
Expecting 15% or constant returns from stock mutual funds (or gold, fixed income mutual funds, NPS, or any other market-linked asset!) is reckless. Also, stocks may beat inflation, but that doesn’t mean you will.
So what would be the solution?
So no return is expected, but what is the solution? First, let’s clarify it a bit. If the idea is simply to buy a unit and live hopefully, you shouldn’t expect a return. As shown earlier, a way to derisk an investment portfolio, regardless of the order of returns (which is why returns fluctuate), is through a clear asset allocation plan and gradual capital reductions. Reach the target corpus.
This does not mean that everything is lost and your stock investment is wasted. Equity investments offer more than enough chances to beat inflation. This is much better than what we can get from many situations in life. That doesn’t mean you’ll get the benefits you expect. The two are completely different benchmarks. See also: Why should I invest in stock mutual funds if there is no return guarantee?
So the solution is to replace the target return (=expectation) with the target corpus. This is only possible if the purpose of the investment is clear. Create a concise plan for each goal with the Freefincal Robo Advisory Tool.
Consider a 15-year goal. You can use a 10% pre-tax or 9% after-tax return from the stock.Is required Several Bring your expectations back to the kickstart plan. The lower the better, but I don’t really care much more than that.
However, one should not expect the portfolio to grow at such a pace. First of all, 100% stock investment is a mistake. Too much volatility in expected returns and too much risk.
RoboTool recommends an initial asset allocation of 50% equities and 50% bonds. For many people, this may seem “too conservative”. However, adding capital only increases the risk, not the reward.
Also, a 15-year goal may not always remain a 15-year goal. Before you know it, you only have 5-6 years left, so you’ll have to reduce your equity allocation anyway. If the return is bad at this point, the overall portfolio return will be lower than expected and the lost time will be lost forever (you can’t go back and invest more). See also: Stocks may beat inflation, but that doesn’t mean you will!
Therefore, starting with modest equity exposures and then gradually tapering them off significantly increases the likelihood that the portfolio will be less volatile and closer to the target corpus. This asset allocation plan is auto-generated by a robo tool for 15- and 10-year goals.
The main benefit of variable asset allocation is that it shifts the focus from the set return target to the target corpus. No need to worry about news or events affecting market returns.
In summary, readers are encouraged to first understand the importance of asset allocation, including large amounts of debt (bonds) in their portfolios, and then consider the equity risk mitigation plan outlined above. To start from scratch, see Portfolio Building Basics: A Beginner’s Guide.
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Dr. M. Pattabiraman(PhD) is the founder, editor-in-chief and lead author of freefincal. He is an Associate Professor at the Indian Institute of Technology, Madras. He has over nine years of experience in publishing news analysis, research and financial product development.connect with him via twitter again LinkedIn, again Youtube. Pattabiraman has co-authored three printed books: (1) Goal-Driven Investing Can Get You Rich For DIY investors (CNBC TV18). (2) game changer for young people breadwinner. (3) Chinchu gets super powers! for children.he also wrote 7 others free e-book On various money management topics. He is a patron and co-founder of “.toll only india,is an organization that promotes impartial, fee-free investment advice.
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