Goal based investing #8 – A personal example

I had said yesterday that I will give a real-life example of a Goal of mine and the ways it can be fulfilled under different scenarios. As this post is going to be somewhat long, suggest only the interested read it.

The Goal in question is my Daughter’s MBA education. It is likely to start in July 2016 and the overall expenditure can be up to 20 units ( avoiding actual monetary figures). For the sake of simplicity let us assume 10 units will be needed in July 2016 and another 10 units in July 2017. Some of this is monthly but this is easier to explain.

As some of you know, I have a stock portfolio, a MF portfolio and a Debt portfolio. I also have some current active earning out of my Consultancy practice, which is not used for my regular expenditure. Let us say that my stock portfolio is 120 units, MF is 80 units and Debt is 200 units. The income from Consultancy varies but it can be up to 20 units in a year. I do not have any part of my portfolio, earmarked to any goals, just use it based on the circumstances.

So what are my plans in July 2016 when I will be needing 10 units for my daughter’s MBA course? Following are the options I will have:-

1. Use my Consultancy income between now and next year to fund this partly or fully. Note that I can afford to do this as my regular expenses are taken care of by other means today. In general, it is always a great idea if you can fund a goal out of current active income.

2. If 1 does not work out ( partly or fully), the next option will be to look at my stock portfolio and see if it makes sense to liquidate any stocks to meet the expenditure. This will depend both on the market situation as well as the particular stock’s future outlook.

3. If it does not make sense to sell any stocks, next bet will be the MF portfolio. This will depend on the market situation and my aim will be to redeem the MF which are the oldest and ideally run up the most over the years. Large cap funds will typically be better redemption candidates unless mid and small cap funds have really hit a purple patch in 2016.

4. Assuming all of the above do not work out I will be forced to look into my debt portfolio. Though I have 200 units here, all of it is not liquid. PPF is about 40 units, FMP s maturing in 2016 are about 20 units and other Debt funds are about 15 units. I will probably use the FMP redemption money first, the redemption from Debt funds next and the PPF withdrawal last.

I use the same 3 portfolios with the same strategy for all of my goals. The basic aim is to make sure that I do not liquidate my equity portfolio at an inopportune time.

For my situation, a few notes will probably be relevant to the readers of this post:-

  • All my goals so far have been funded from my active income, except for the house down payment which I paid out of the maturity proceeds of some FD.
  • My PPF and Equity portfolios have therefore had the maximum chances to grow.
  • I was able to ride out the crash of 2008 as I did not need the money from my equity portfolio.
  • In my state of FI, my passive income funds my regular expenses but these are not out of any redemption proceeds.

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6 thoughts on “Goal based investing #8 – A personal example

  1. In another post, you suggested not to indulge in any debt products other if a person has PF and PPF. After maxing out the PPF, all surplus should go to equity.
    But from the example above, looks like you managed to equate your debt and equity portfolios (both 200 units).
    Did the return from debt part was at par with equity? Or equity did terribly bad to match returns from debt. It’s really scary if second hadhappenedto your equity folio. It can then hapen to any investor.


    • I have put more money into debt only when I wanted to get out of a corporate job and do my own consultancy. At this time, it was important to arrange for passive income stream which debt can give. My stock portfolio has a CAGR of 29 % and the MF portfolio has a CAGR of 22 % so they have done quite well. My plan is to keep these without any redemption for as long as possible. Return from debt has been much less but it has had the benefit of compounding. Remember that in my case PPF investment was limited to 70000 Rs till 3 years back.


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