The alternative to “buy and hold”


Vijai Mantri: So before I come to that conclusion or whatever alternative we come up with, I think it’s very important to understand why this happened. People say buying and holding is the best strategy, but when you take money out there are periods up to a third where buying and holding hasn’t worked. Why did this happen? This happens when you start your corpus when the market peaks and you start to take money out when the market is in a bearish space. So your withdrawal occurs, and the bearish phase hits you at the beginning of the withdrawal of the corpus. What is happening is the reverse of SIP. SIP is doing very well in bear markets where what happens when prices are low you buy more and more units. What happens when you withdraw money? Suppose during this time the market is in a bearish phase, then what if no matter how much you withdraw ends up consuming a lot of your units. So the period that we went through 1992, 1993, 1994, 1995 was a period when the market in 1992 hit a very high level and then for the next 10-11 years the same prices did not come. We saw a similar situation in 2006, 2007 and 2008 when the market hit a very high number and then entered a bearish phase. SIP is ideal for accumulating assets when the market is in a bearish phase. Conversely, you have to withdraw money and unfortunately at that point the market is in a bearish phase so you are struggling. So what we’re trying to say is that the future is uncharted territory, a random walk. We don’t know when you start to pull out whether the market will enter the bearish or bullish space … So what’s the solution available if you don’t know what will happen in the future? The only source of information we have is past data. In India we have data for 40 years, I think that’s a pretty long time — after independence, after economic reform, we saw all kinds of scandals, scams, whatever could happen. ‘is produced on the market. We have looked at this historical data and come to a conclusion … First, investors should have a very good financial advisor available to them at all times. DIY may look great and may seem cheaper, but the cost is very high. So you have to have a very good advisor. Second, asset allocation. Don’t get carried away by the fact that stocks are doing very well, because no asset class is doing very well all the time. So do your portfolio review periodically, especially when the asset class is doing too well, at that point you will need to be more careful. Third, what are the other alternatives available to save more or withdraw less money. So in the illustration given, instead of putting everything 100% in equity, we split the corpus: I made 10% to 90% equity debt, 20% 80% debt equity, 30% debt to 70% equity, 40% debt – 60% equity. I did all the permutations and combinations, but nothing worked. Finally, what worked is that I made an allocation of 50% in stocks and 50% in debt. The equity allocation goes into the equities on a 60 month systematic transfer plan. So we don’t do equity allocation all at once – all of Rs crore is invested in debt, Rs 50 lakh is meant to be transferred to equity for the next 60 months and the remaining 50 lakh. lakh of Rs which is there in debt, you withdraw money regularly, same logic, but instead of 8%, we reduced that to 6% … otherwise the corpus will not last at all.

So what we have done is suppose you take Rs 6 lakh in the first year in equal monthly installments of Rs 50,000 per month and then increase that annual withdrawal by 6% per year as we did. did in the previous illustration, then your corpus lasts even for those 14 years in which, in the previous illustration, the corpus lasted from seven to 18 years. By the time you adjust it to 50-50, a location’s equity doesn’t go all at once, it goes into 60 installments and you reduce your withdrawal from 8% to 6%, then in each condition given to the over the past 41 years, the corpus has spanned over 20 years. In some cases, 30 years, 35 years and the corpus is still available today. It can fund for the next 10 to 20 years.


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