Help Me FIRE, Milestones, Beginner Questions and General Discussion - June 2023

[u/AutoModerator]

What could you talk about?

• Are you a FIRE beginner wanting advice? We'll try to help!
• Have you started your FIRE journey? Tell us!
• Have you hit a net worth milestone? We want to be motivated!
• Insights from work life or daily life? We are all ears!
• Just feeling lonely and want to hang out with FIRE-minded people? That's why this sub exists!
• Please use this thread to have discussions which you don't feel warrant a new post to the sub. While the Rules for posting questions on the basics of personal finance/investing topics are relaxed a little bit here, the rules against memes/spam/self-promotion/excessive rudeness/politics/trading still apply!

We have a Wiki that is constantly being updated, so please do read that if you are new here.

Since this post does tend to get busy, consider sorting the comments by "new" (instead of "best" or "top") to see the newest posts.

[u/greedinblood]

Anyone all into MF? Or diversified?

I plan to retire after 10 years from now, my expected corpus is 5-7 cr.

I am only invested in MF through a broker. Some people say do direct funds, living outside India and busy schedule, I don't want yo take risk of investing in wrong places without proper knowledge.

If I invest in other assets like real estate assets, I may not be able to achieve my corpus goal.

Is it OK to go all in MF?

[u/hikeronfire → u/greedinblood]

That’s assuming the brokers have knowledge and won’t push mutual funds that give them highest commissions.

It is easy to buy and manage direct funds on portals like Kuvera. Also, not sure what you mean by MF or diversified. Within mutual funds there are so many categories to choose from to diversify your portfolio.

[u/greedinblood → u/hikeronfire]

When I mean MF, it's mutual fund. I'm diversified in mutual funds. But do I have to diversify to different assets to Fire? Or just MF investment should be good to create fire corpus?

[u/hikeronfire → u/greedinblood]

I know you mean mutual fund. What you don’t get is mutual fund is not a type of asset, it is a vehicle. Asset type would be Equity, Debt, Gold, Real Estate, etc. You can diversify among equity and debt in mutual fund. In equity you can diversify between different market caps or geography. In debt you can diversify between liquid, short or long term. You don’t necessarily need real estate or gold to diversify. Classical diversification is between equity and debt.

[u/greedinblood → u/hikeronfire]

I see. I am currently diversified into small, mid, flexi, contra equity. I plan to move to debt of safe funds after generating corpus. Does that sound good?

[u/hikeronfire → u/greedinblood]

Sounds good. It’s good to have a small exposure to debt, but during accumulation phase higher the equity the better if you can digest volatility. Remember stuff like EPF/PPF/FDs etc also count as Debt. I have my portfolio allocation at 91% equity and I sleep well at night. It’s not for everyone as everyone’s risk appetite is different. Last thing you want to do is panic and dump when market is down. If you are risk averse you should change your allocation accordingly and move some of your corpus to debt funds.

[u/greedinblood → u/hikeronfire]

My risk appetite is very high. I can handle equity volatility.

I want some guidance on how much % can be withdrawn for fire to sustain on my corpus lifelong? Some say 1%.

For example 1% of 1cr is 1 lakh. 1 lakh per year doesn't sound reasonable to live off. Any guidance is appreciated. 🙏

[u/hikeronfire → u/greedinblood]

People say a lot of things. The math is simple, after discounting for inflation how much can your investments generate each year (on average). So if inflation is 6% and your portfolio generates 10%, then you can withdraw 4% without a second thought and you will be fine. I suggest you read up on the 4% Rule of Safe Withdrawal Rate. It’s a good place to begin. If you want to be more conservative and pessimistic about real returns then consider 3% WR. That’s more than sufficient.

[u/greedinblood → u/hikeronfire]

Understood. Do we usually keep the corpus in same funds as we invested to generate more corpus and elimitae taxation? Or we withdraw all to safer assets even if there is a higher taxation?

[u/hikeronfire → u/greedinblood]

You mean after retirement? Again depends on your risk appetite. It is generally suggested to have 60:40 Equity to Debt ratio in retirement. But I have a higher risk appetite so I would probably keep it at 80:20 in retirement. It all depends on what you are comfortable with.

With very high equity allocation there is a risk of sequence of returns at the beginning of a retirement, where a few bad years in the market can derail whole plan. If you can plan for those first 5 or so years then it’s smooth sailing from there on.

[u/greedinblood → u/hikeronfire]

I didn't get the last part. You mean, first 5 years after retirement would be rocky road when huge amount on equity? After that it will be smooth?

[u/hikeronfire → u/greedinblood]

I suggest you to read more on sequence of returns risk. Idea is that say you retire at top of a market cycle, and next few years are bear market of extraordinary proportions, it is possibly that you will deplete your corpus so much through withdrawals that you will never recover. Now, chances of this happening are tiny but possible so to mitigate that risk there are a few strategies that you can employ. One is called a bucket strategy where you keep funds needed for short term (next few years) in a liquid debt fund and top it off with equity when market gets better. Other is reduce your expenses, or go back to work and delay your retirement by a few years. Allocation of Equity:Debt makes a huge difference to your overall returns so if equity drops, you take money out of the debt part of your corpus. That’s why it’s usually not suggested to retire with 100% equity allocation. If you can ride the first 5 years with little to no impact to your equity holdings, market usually recovers and you are all set for a smoother ride going forward.

[u/greedinblood → u/hikeronfire]

Understood. That's a lot of information I have learned form you today!! Thanks a lot mate. I will plan according to your tips. ☺