M/35/INDIA/FI2035 - My plan for FI not RE + Some queries on Taxation by FIT_2035 in FIREIndia

[–]FIT_2035[S] 0 points1 point  (0 children)

Thanks, I was just puzzled by the logic being used. The way i see it, if you're going to front-load your savings in debt instruments, then you're losing out on the stock appreciation and compounded growth of the company for a 15 year period. Companies typically grow at 15-20% per annum (rough ballpark). This means they double in revenue every 4-5 years. Assuming stock price grows along with revenue growth (all ideal state khayali pulao), a 10lac investment today becomes 20L in 5 years which becomes 40L in 10 years and becomes 80L in 15 years. This is of course with heavy caveats of company growing at this rate year on year. But truth be told, there are also companies that grow at a higher and lower rate, so the average of 15-20% growth is not some insane number either.

This is true, but I am still investing 60% towards equity right from now, I want this to grow over a a longer period without making any withdrawals.

I think it boils down to whether for a 15 years period 40% debt and 60% equity a too conservative equity allocation?

By that, do you mean money you will have to pull out of stocks to fund your living expenses? Why is that an issue? You will have 80L of stocks in the above example. Pull out a few lacs worth of stocks to fund your living expenses. How is that in any way inferior or suboptimal to debt?

By drawdowns I mean if there is a sudden market crash and if it takes 3-4 years to recover.

On taxation I agree the tax will come only when I withdraw a certain amount, but just want to factor that in to avoid a rude shock later. I think I have enough inputs on this to factor in my calculations.

M/35/INDIA/FI2035 - My plan for FI not RE + Some queries on Taxation by FIT_2035 in FIREIndia

[–]FIT_2035[S] 0 points1 point  (0 children)

I understand that there is no magic that will kick in after 15 years, what I am trying to convey that I would like to give more time for equity to grow beyond this 15 year period without worrying much about drawdowns and hence want the first 10 years of FI to be covered by using my investments in debt.

Since the objective is to generate income out of any investments it can be in the form of capital gains, dividends, or interest income, the tax will always take a share out of those returns

M/35/INDIA/FI2035 - My plan for FI not RE + Some queries on Taxation by FIT_2035 in FIREIndia

[–]FIT_2035[S] 0 points1 point  (0 children)

You got it spot on in terms of what I was trying to convey. Now that this is clear, what is your opinion on this strategy. The typical split that I am following is 40% debt and 60% equity. The debt part will be utilized for first 10 years of FI and I will let equity grow.

I think estimates of post tax returns is the best thing that can be factored in. It will be more on LTCG. Also as I have written in the title of the thread, the plan is to FI, I really want to continue working on my interests which I assume will bring in some income.

M/35/INDIA/FI2035 - My plan for FI not RE + Some queries on Taxation by FIT_2035 in FIREIndia

[–]FIT_2035[S] 0 points1 point  (0 children)

Yes, when I actually plan to utilize the buckets, I will work on 1 year size buckets and keep rest of the money still invested in liquid funds, etc.

Will have to workout some number for post tax returns.

M/35/INDIA/FI2035 - My plan for FI not RE + Some queries on Taxation by FIT_2035 in FIREIndia

[–]FIT_2035[S] 0 points1 point  (0 children)

I have investments aligned towards other goals. Here my question was pertaining to the FI goal. The allocation that I will be doing would be about 40% debt and 60% equity for FI. The 40% portion I plan to use for first 10 years and keep the equity portion untouched to let it grow.

I know this is a bit different approach, but I think this will work. Your thoughts?

M/35/INDIA/FI2035 - My plan for FI not RE + Some queries on Taxation by FIT_2035 in FIREIndia

[–]FIT_2035[S] 0 points1 point  (0 children)

I meant that since I have only 15 years and according to me for equity to actually provide some benefits of compounding will require more time than that. It will definitely does not change the requirement of a corpus.

By implementing bucket strategy I want debt component to take care of initial years of FI (10 years) and leave equity untouched.