The Number 1 Reason 90 Percent Investors Fail At Financial Freedom Dr Pattu

TITLE: The #1 Reason 90% Investors Fail at Financial Freedom (Dr Pattu Reveals) | M Pattabiraman Freefincal CHANNEL: Husslefreewealth DATE: 2025-10-16 ---TRANSCRIPT--- you will not make money which is why I believe financial literacy cannot be spread people should have the right temperament and most people don’t have the right temperament to be financially literate or to be wealthy you should say inaction is the most important aspect of portfolio management the more you are going to complicate your portfolio the more it becomes difficult to even say I have this asset it’s a mess most people’s portfolios are complete mess they they want theoretical ideas about asset allocation retirement planning etc. But if you look at their portfolios it’s a complete mess. If you do a retirement planning calculation for the first time and if you are not shocked by the result or if it if it uh if you are able to sleep comfortably after doing the retirement planning calculation either you are very frugal you are in earning a lot of income or you have done something wrong in the inputs. For most people they want to sell dreams. They they want to be sold dreams. They like they like people selling them dreams. So I ask your viewers, what do you want? Do you want a guy who offers you motivation and encouragement by giving you wrong inputs, wrong assumptions or do you want to do you want to listen to a person who is more practical? Retirement planning is a dynamic process that you need to do every year because the inputs will change, the assumptions will change, the economy changes, the country changes, your personal circumstances changes. So you have to redo the calculation every year. It’s not a I will do it once and just invest and forget about it kind of situation. If you want to talk about the retirement planning, you must have clarity in portfolio management and how simple your portfolio should be. If you don’t aim for simplicity in your portfolio construction, you will have a mess with your retirement plan and and people are going to curse you when you die. If you have a cluttered portfolio, people are going to curse you when you die because they’re going to get they want to get money from this instrument. They’re going to get money from that instrument. They will curse you. Don’t do that. Keep it simple. At least your nominees will be happy. Hi guys. Uh welcome to hustle free wealth. I have with me Patu from uh Freefinal. He has been financially independent for a while now and has been instrumental in getting many people on financial freedom path. In this video, we’re going to cover you know how much money someone needs to retire. questions on asset allocation and plenty more depending on the time that uh we have available. So thank you Patu for joining uh

okay I I’ll directly come to uh the first question how much money uh does someone need to retire by 40? I I know you won’t be able to answer this question uh you know without the assumptions. So I’ll take uh some of the assumptions. Uh so let’s say uh they have a 50/50 equity debt allocation and a separate buffer for other goals. Yeah. So um see this is a very difficult question to answer that on see I find um on the one hand the people give offhand uh very easy answers to this um but but practically speaking this is a very difficult answer question to answer and I’ll explain why. So let’s say ideally that this person that we are that we’re going to talk about who wants to retire by 45 maybe let’s say 50 just to be because 50 is now the new 60 I would say for retirement planning uh for for our parents generation 60 was the retirement age but I think that has now gone down to 60 because so to gone down to 50 excuse me because of uh the kind of corporate culture we have because of the stress that we have etc. So we’ll just keep it as 50. 50 is normal retirement. Even if one is active by 50 they should become financially independent. That should be the goal for everybody. And and that I would consider as normal retirement today maximum 5. So let’s say somebody uh who has become financially savvy at a very young age let’s say at age 25. So they just started working you know one two years they into the job. Uh they just started reading some things about tax saving. Usually it starts with tax saving right for everybody. They want to save tax and uh they want to uh you know get better returns. Maybe they talk about fighting inflation and then slowly it leads to financial planning. So at at that stage when you want to um you know start your financial planning journey or retirement planning journey and say how much do I I asked this question that you asked how much do I need? At that point if you use a very standard reasonable uh reasonably okay calculator on online there are many online calculators of course people now use chat GPT even they used to type two two entries in a calculator and click calculate even that has gone now they just type in chat GPT and assume that whatever it says is right so uh that’s another danger that we have now but it’s available and uh typically they would they would uh the target would be 30x That’s the kind of calculator uh and typical answers that uh the calculators will ch out and what does 30x means? 30x means 30 times the annual expenses at the time of retirement not now. So that would be the kind of corpus. So which means that so you will have to take into account your present lifestyle your present expenses inflate it by about 7% 8% inflation to to over the next 20 years 25 years that’s the time of retirement and then multiply it by

So that’s I that’s something that I mean I don’t like to use thumb rules because look you have so much tools today it take 2 minutes of your life to punch it in and find out. So uh let’s not give you I would say 30x but 30x is at future expenses but the problem now is uh if sorry to uh let me finish it. Uh the problem now is that how do I project future expenses? Everything is an unwarm. I’m just 25. I’m probably not even married. I’m going to get married. I don’t know who to that person may be financially compatible with me or it can be my worst nightmare. All sorts of problems. Then comes uh children. Then comes taking care of in-laws, taking care of parents. There’s a huge you know uh uh family uh process and evolution that happens. So our this this target the how much do I need to retire is actually a moving it’s a moving target. It’s moving the goalpost is continuously changing. It takes some time to appreciate it. It is not something that you can appreciate at 25. You can appreciate this only by I would say 35 or 40. It takes 10 years of investment and 10 years of looking at your expenses and what happens to you. Life has to happen to you. That is when you get you understand the ups and downs. You you can appreciate risks only when you are life happens to you. If everything is smooth uh then you know things are you you have a very different perspective. So I would say to to start with aim for 30x where X is your future expense and use about 8% inflation to inflate your current lifestyle to the future lifestyle the lifestyle at the time you retire. So that will be the starting point but this will keep changing every time something happens to you every 5 years every time your family uh you know situation changes your expenses change people say inflation is 6% 7%. I would say inflation for young people even up to age of 50 55 even up to 55 I would say it’s close to 9% 10%. Because the most of the inflation that you have is lifestyle changes. It is not the government reported inflation of 4% 5% RBI did this RB that doesn’t matter that is completely irrelevant to the common man. I mean I’m practically speaking because tomorrow you’re going to buy a better phone. Tomorrow you’re going to ride a better bike or buy a car, buy a second car and you’re going to buy a bigger TV and you’re always going to enhance your lifestyle and as your lifestyle enhances the retirement corpus is going to grow. Right? For example, I am recording this on a Mac Pro. Right? The Mac Pro cost me 2.5 lakhs 3 years, 3 years ago or 4 years in. Now, okay, I got that. I had some money. I bought it. Now, how do I account for this in my retirement calculation? Nobody does it, right? Because if my Mac Pro crashes today or let’s say when I retire and it crashes, what will I do? Will I say I’m not going to use a computer at all? I’ve been using Mac all my life, will I say I’m going to downgrade myself? How will I pay for even repairing a Mac Pro is pretty expensive. Anything associated with Apple is expensive. Halfbitten Apple is expensive. So how am I how I would say most people don’t even know how they will buy a new washing machine after when it breaks down after they retire because that’s not factored into the retirement planning calculation. Most people don’t do it because they will say what are your current expenses? Your current expenses does not include how much you will pay for your new phone, your uh computer when it breaks down or your washing machine when it breaks down. It’s a mess. Now you’re wondering maybe I should not have called him on. No no no no no no. uh the no the these are the factors that I have also included uh in my uh annual calculation right so there is a separate bucket for uh you know all of these replacement of uh tools that I have uh but then uh even if you do that right 9% or 10% the moment I start calculating anything uh at 9 or 10%

inflation inflation yes uh you which means practically I am going to get zero or negative uh portfolio returns. How do I even uh plan uh the corpus right? Uh do I take it at 0% real return minus 1% real return based on my expenses. Now I’m not talking about those folks who have lot of discretionary expenses. I’m talking about uh you know people who have uh you know very little discretionary expenses that have been baked into their retirement corpus calculation. So for them uh how much should be the inflation that uh needs to be taken if someone has already accounted for all of these as a separate buffer right uh replacement of see it’s for somebody who’s struggling to see or see the problem is this I would say like this uh when I when we teach quantum mechanics in class and the first thing we say is if you are not shocked by quantum mechanics you have not understood it if so if if If you do a retirement planning calculation for the first time and if you are not shocked by the result or if it if it uh if you are able to sleep comfortably after doing the retirement planning calculation either you are very frugal you’re in earning a lot of income or you have done something wrong in the inputs for most people they want to sell dreams they they want to be sold dreams I would say they like they like people selling them dreams. So I ask your viewers what do you want? Do you want a guy who offers you motivation and encouragement by giving you wrong inputs, wrong assumptions or do you want to do you want to listen to a person who is more practical because if things go wrong you can’t correct it. If things today if I get a big expense when I’m earning I get a big expense I can manage it because I know I’ll get my salary on the 30th of the month. That doesn’t happen in retirement. That flexibility doesn’t happen. You don’t have that income. You can’t do a retirement planning calculation again. So to specifically answer your question, yes, most people will be frightened by retirement planning calculation. And if they don’t have too much to invest and if they if they are going to assume that they are not going to uh have any discretionary spending in retirement, I would say at least aim for 6% after retirement, 7% before inflation wise. That’s what I would recommend. That’s the baseline. Don’t go below that. Aim for 7% inflation before you retire and 6% inflation after you. I I’ll start uh for viewers who want to do their uh own calculations. We should not be giving a blanket number because circumstances are different and their own uh salary, income, expenses are different. So uh first we are talking about the asset allocation. Do you think 6040 is going to give higher uh portfolio return than 50/50 in long term? Let’s say in 10 years time. The truthful answer is nobody knows. Okay. Nobody can know. Nobody. If somebody says they know they they are either selling something or they’re just speaking through their hat. No. But then their reasoning is based on the past data. For example, for equity I’m going to Exactly. All them all of them come with a small fine print says that says future returns uh need not represent past data the past does not represent the future right so that that that’s the point you should always plan for the unknown and no let’s keep it uh to a focus I would say choose a asset allocation that you are comfortable with some people say I am young therefore I will take more risk and just because they’ve seen couple of years of bull children they assume they can handle 80% equity. Fine, you live and learn. Take 80% handle 80% equity and see what happens. Nothing is going to happen because you’re you’re young. You can you still have the time to fail and get up in life. It’s not a problem. Um so if you’re young, choose something higher in equity. That’s absolutely fine. But the problem with investors is they want to believe that they have chosen the right thing. They want to believe that they have taken the best decision. That’s immature. You choose something suitable for you. If you think 80% works for you, choose it. If you think I I’m okay with only 40% equity, that’s absolutely fine. But invest the necessary amount. So uh this is what happens right for uh folks who have uh invested uh in the market for a long time and they are comfortable with equity allocation. So for someone like me, I I understand uh the cycles and then for a long period of time I could get uh probably no return and I’m okay with that. I factored in all of those in my plan. But one of the question that could come is uh many people talk about 6040 allocation as the allocation that is probably going to give best portfolio return per history etc etc. So what is the asset allocation that I should strive for to get the best possible return because that’s what the focus is. If I am able to uh you know take care of my behavior then the next question comes which is the most ideal allocation asset allocation for me. See um yeah that’s a it’s a very interesting question but again uh I don’t want to frustrate you by giving you weird answers and I’ve been giving you weird answers so far. M no plea please please please the goal here is to educate uh folks please go ahead because everybody wants nice answers yes no they want at least not you but I’m saying so the the thing is see determining any initial first of all let’s understand this your asset allocation that you want to talk about is your initial asset allocation let’s say you choose 50/50 for a for a as an example you are not going to hold 50/50 all your life you’re certainly not going to be holding uh 50/50 at the time of retirement that there’s a big if there’s a there are there are certain circumstances when you can hold 50/50 but typically speaking I don’t think you should plan for 50/50 so I would recommend after retirement not more than 20 to 30% equity for most people for normal people because the YouTube viewers are always saying YouTube comment commenters are always saying I’m just an ordinary man what about me all this plan is not suitable for me so I’m let me give you a plan for ordinary guy out there 20 to 30% only not much corpus to play with not much of uh you know discrimination expense whatever so 20 to 30% equity is what I would I would suggest for the normal job out for for those who have lot more money they can play plan for more equity exposure we’ll come to that but so your asset allocation is not a fixed thing it’s not going to be held in stone you have to taper down your asset allocation gradually from let’s say initially 50/50 or 60 40 equity to this 20 30% equity over time. So you have to change this. But what would be the starting point? How would you determine the starting point? There are two factors here. One is what equity and fixed income return assumptions are you going to make? The asset allocation depends heavily on that. Are you going to expect 15% from equity which is immature, 12% from equity over the long term, quote unquote, or 10% equity before tax? I would say aim for as low a return as possible because you you mean if you aim for the first floor, you will be happy if you get to the second floor. True. If you aim for the 40th floor, you are always going to be disappointed if you fall anything less and you can’t go back in time and invest more. So you aim for something like 10%. I would say youngsters should aim for 10% equity not because that they are going to get only that much. I don’t know what the future is. Nobody can tell you what how much return equity markets will give you over the long term. There are some calculations like 4% GDP uh plus inflation blah blah. All those all those calculations are just nonsense. Equity markets does not listen to anybody. Uh it doesn’t follow any thumb rule. It just give does what it wants. So um you aim for the lowest possible that your in that your investment will allow. Right? 10% before tax is what I would strongly recommend. Okay? If you if you expect only 10% before tax, the amount you should invest becomes higher. Therefore, okay, if it if it bothers you too much, make it 12% before tax at best. Don’t go beyond 12%. From your overall equity portfolio before tax. That’s the first assumption you’re making. And that’s a big assumption. You don’t know what the market’s going to give you. So, second, how much is going to be your fixed income return assuming that you have only two asset class. Fixed income, I would say aim for 7% if it’s taxfree. We talking about EPF returns, PPF returns after 20 years. We are not talking about current EPF returns, PPF. Isn’t uh 7% higher uh because we have seen gradual decrease in uh you know fixed income interest rates and the cycle is going to I would I would appreciate you if you choose less you know but I’m just trying to uh you know not dunk you underwater too much. just saying aim for something reasonable because now it is already what 7.5 7 and a half almost EPF is 8% 8ish% but expect at least 1% fall over the next 10 10 20 years maybe but if you want to expect 6% from EPF and PPF it’s a it’s a solid plan it’s a robust plan but without too much of discouragement at least expect 7% and 6% from taxable fixed income like debt funds See I I I don’t really care uh you know if somebody gets discoura though the channel is made to encourage people but then uh the important part is to tell them the realities of the world right so even if it comes as a shocker I’m fine with that so uh do you think for a long period of time let’s forget the long period of time for 10 years period uh 6% of fixed income uh return. Why I’m not taking 7 or 8% is because 8% is 8.1 or 8.25 is what you’re getting in EPF. 7.1 is you’re getting in PPF. But there is a lock into that, right? But if you want to spark uh some money separately, uh people usually go to fixed deposits, not a tax friendly uh avenue, but there you get around 6 to 7%. So for a 10-year period, right, I don’t know what the future holds after uh 20 years or so. So for a 10- year period, do I take 6% as a fixed uh income as that? Would you consider that to be reasonable and logical? Very realistic. Yes, it is uh reasonable becomes a private uh uh point. But I would say it’s very practical because the people who can’t invest more would find it unreasonable. That’s how it always is. the when the Excel shows you bad result you think it is unreasonable but it’s very practical and I would say if you can choose 6% choose 6% or push it a little bit higher for the moment see the the the whole point I want to point uh uh want to convey is that retirement planning is a dynamic process that you need to do every year because the inputs will change the assumptions will change the economy changes the country changes your personal circumstances changes so you have to redo the calculation every year it’s not a I will do once and just invest and forget about it kind of situation because everything changes. Okay, if it discourages you too much, choose 7% now from fixed income. Maybe taper it down lower when your income increases when you get a promotion or you know when you get a big salary jump or you jump to another company paying more then you maybe tinker down your fixed income a little bit for the moment just to get started otherwise people because people are always saying I’m discouraging people so okay 6 7% whatever no the point now is you have now fixed your written assumptions whatever they are 12% from equity 6 to 7% from fixed income then You choose the mix which will give you a portfolio return. 50% of this, 50% of this, 60% of that, 70% of that, whatever. You can try different things on on a spreadsheet and that will give you the asset allocation that you’re going to hold. Now, are you comfortable with this? First of all, your risk at uh matters. Now the problem now is uh I have seen how Indian investors are ch have changed from no no equity is all gambling to I am 100% equity the scenario has completely changed and all it took was only 2 three years of bull run. People just changed now they say NPS has become 100%. No let me make that also 100%. It doesn’t matter what my current asset allocation is. I’ll make that also 100. If it’s if it’s allowed I’ll make everything 100%. Everything should be in equity. When the market is going well, everybody wants to be in that. But nobody has seen few years of down downturn and they think it’s not possible. It cannot happen. It can happen as easily as you know getting out of bed. You it will happen before you even know it. And it who knows it may be happening now happening now. As we speak it may be happening. We don’t know. We only have know it in hindsight. Right? So uh you should always plan for that and you should ask yourself can I handle um such a huge risk and most people think that they can at least be open-minded in saying I have not seen such a big fall therefore I don’t know how I will behave at least have a little bit of you know humility in that p you don’t need to advertise your humility at least tell your tell the man in the mirror that I have never seen such a big risk so I should not be thinking that I can handle I I have been I think both of us have been investing for nearly two decades now and I can say confidently that if the market decreases 50% tomorrow and if it stays down 50% I don’t know how I will behave. I I I can say stay invested blah blah blah all those kind of social media messages but personally I don’t know how I will behave. It’s not something that it’s so you must have a little bit of humility and I doubt yourself whether you will actually be able to handle it. Do it personally. You don’t need to advertise everything. The problem is everybody’s advertising everything these days. Just talk to yourself. You know, think alone. Therefore, I would say okay, you’ve chosen 50 60% equity. That’s enough. If you’re okay with higher than that, choose that. But ask yourself, how are you also going to go from the initial Astralocation to what you want to do later? That may be a big jump for for a for a somebody in the 20s for a very young guy. This is a very difficult question right I’m uh I’m saying you you have 70% equity now let’s say as an example and I’m saying you should aim for 40% equity at the time of retirement or 35% equity something like that so you should go from here to there how are you going to go from here there this is a secondary question that the young guy want I want to just start don’t ask don’t pro confuse my brain with such questions but this is a guy who should somebody in the 30s or 40s should ask ask this question very seriously because this will change the retirement planning dynamic. So that’s why I keep saying it there’s not one answer because as you ask more and more questions about how your retirement is going to evolve the corpus will keep changing for the same guy. Even if you assume that guy’s family situation has not changed even for that person as they think more and more about how they going to manage their money in retirement as they age the corpose will keep changing the planning will keep changing so it’s a very it’s not a it’s not a very simple thing to say 30x 4% retirement rule 5% rule or 2% rule whatever it can’t you can’t simply give out thumb rules like that all I am saying is the I think one I I don’t want to waste people’s time and it one important takeaway is that please ask yourself how what is what is good for you and your family what will work for you temperamentally what will work what will be your future be ask personal questions all the questions lie within as our great uh Maharishes have said all questions lie within they don’t lie outside so I’m not sure if I answered it properly because no no no you did because uh you know there are a lot of uh things at play here. You also said 10% uh is what one should expect from uh equity and that is uh pre-tax. Uh then uh we talked about uh you know fixed income returns uh so ranging between 6 to 7%. uh and uh then the inflation rate uh that you factored uh you said was around uh 9% or something but that could that could change based on uh your own uh expenses right somebody could have lot of lifestyle expenses somebody could be disciplined and they are able to control it so maybe the best way would be to just look at the annual expenses over the last few years and just see how it has for you and then maybe project that in the future. Correct. As a baseline, I would say 6% for the so-called common man. I would say 7% before retirement, 6% after it. That’s the the baseline. Don’t go below that. No matter how frugal you are, don’t go below that. At least aim for that much. Of course, frugality will help a lot. But I mean the pro this is the problem. I mean there’s an argument that say I will be frugal. I don’t need that much money. That’s absolutely fine that you want to be frugal. But will life allow you to be frugal? You may say I don’t want a car. I don’t want a big phone. But what about health expenses? You may fall sick and you may have to get into some kind of costly medical treatment that that you know keeps recurring every month and so on. This is the the unknown is what uh you know can shatter your plans. That’s so that’s why I said think deeply about what can happen to you. What bad can happen to you sometimes. Sure. Uh thank you for that. We are taking an assumption that this these people they are financially literate. They have educated themselves. They have uh kind of given them a lot of information about equity, how the cycle plays out, how the history has been. I’m talking about returns here, right? You did touch upon that, but just to give viewers some kind of platform to kind of think uh on somebody who just starting out, what is the asset allocation that person should take? somebody who is at 25 and plans to retire by 40. Then somebody who is uh you know midway through the journey around 30 32 uh and plans to retire by 40 and then somebody who is let’s say 39 or 40 or who has who thinks that they are financially retired for that you already answered 25 to 30% in uh equity should be there and then there is somebody like me that you know who is financially independent but then I I still have some runway I I’m still going to probably work for some time. So what should be the asset allocation for people who have enough but then they are still working they are not actually withdrawing from their kitty retirement depend on how much corpus you you have for example I mean if I can speak for for myself I hold about 60 to 65% in equity mhm okay and my retirement theoretically is about 15 years away 14 years away and uh I still holds uh 60 to 65% because I have the reason I hold it is that I have enough in my fixed income assets to I mean I I the theoretical definition of financial independence in my case would be satisfied just by my fixed income asset assets alone. Okay, make sense right? If you consider my fixed income assets alone that will make me financially independent without including my equity. So my equity is a from that point of view a buffer. So I can I can hold a little more uh than what I would usually recommend. So that’s so it’s a very personal thing. I can’t give you like you agree that it’s a it’s you every person has to look at their own uh situation very deeply and then decide what works for them. But the bigger problem now we have is since we are talking about asset allocations, how many assets are you going to hold? So it really frustrates me that so let’s say 100 people have asked me or more than 100 people have asked me over the last few months maybe even years how much asset allocation should I hold in I’m sorry how much allocation should I have in gold because gold is moving when something moves up everybody is excited and wants to be part of the now the I have only one question to ask them okay you want to going to invest in gold. How will you manage your portfolio? If you have, you must already have equity. You must already have fixed income. You’re going to add now gold. How will you manage your asset allocation or your portfolio with three assets? I have not got a single barely even intelligent answer to that question. Nobody know. Nobody knows. Most everybody wants a piece of the shiny object. What? Gold is now shining. So, they want a piece of that. silver is shining they want a piece of that but they don’t ask themselves how will I manage my portfolio if I’m going to add another asset allocation let’s understand that we keep talking about asset allocation but for most people out there they have they are clueless about asset allocation because they don’t want to rebalance theoretically they know what rebalancing is but if you ask them to practically rebalance it is no no tax. No, no, no. I won’t invest. That’s why I want NPS. Everything will be done by NPS. Everything will be done by this one fund portfolio. They they will do anything to avoid portfolio management which is immature. I am it. I have come to the point I’ve become so cynical having interacted with investors over the decade and a half or whatever time that I’m saying if you don’t even know the basics of portfolio management, why should you even bother about retirement? you are very far away from that. So you I mean retirement planning first of all it requires some element of simplicity in your thinking. You should have you should say two assets are enough for me. If I want three assets then somebody will say international equity. Now there is sif they want I want SF. Oh I can invest 10 lakhs. I’m a middle class guy but I can still invest 10 lakhs. So let me add SF. The more you are going to complicate your portfolio, the more it becomes difficult to even say I have this asset allocation. It’s a mess. Most people’s portfolios are complete mess. They they want theoretical ideas about asset allocation, retirement planning, etc. But if you look at their portfolios, it’s a complete mess. So I’m saying first don’t aim to clutter your portfolio. Don’t listen to people who say oh you can have 10% of sifs you can have 10% of golds 10% of international equity there are only 10 10%s in a portfolio but if you listen to influencers there are 25 10%s in a portfolio which is I don’t know how that’s possible that’s so you understand what I’m saying don’t if you want to talk about retirement planning you must have clarity in portfolio management and how simple your portfolio should be if you don’t aim for simplicity in your portfolio construction, you will have a mess with your retirement plan and and people are going to curse you when you die. If you have a cluttered portfolio, people are going to curse you when you die because they’re going to get they want to get money from this instrument. They’re going to get money from that instrument. They will curse you. Don’t do that. Keep it simple. At least your nominees will be happy. Your you know your uh hairs will be happy that you this simple. No, you have to think like that. I’m saying the problem is there is no such thinking. There’s no the the everybody wants I want a piece of that which shines today but they don’t know how to manage it. If you don’t know how to manage it, stay away from it. You can’t uh somebody told me this quotation by uh Junin Wallala. He said you don’t have to go to every party when there’s a new year or a Diwali. There are there’s going to be tons of parties around and you are going to be invited to a few of them. You don’t need to attend every party. You attend selected one or two which where you are comfortable. The same thing works for portfolio management. You choose something that you are comfortable. And if you are not going to do that, which most people watching this, I’m sure would not have then everything else becomes pointless. I’m I’m sorry, but I’m that’s what that’s what happens when you age and you talk to investors, you become cynical. The No. uh you bring up valid points uh and uh you know some of the questions that I had uh you already you know touched upon that so you know great now but then on that gold and international allocation equity part so the major reason why people invest is because of the uh you know diversification and rupee depreciation uh issue now if you’re not going to invest in gold some of the people are not bothered even if it goes is higher that is okay if it uh uh goes down I’m going to add more but I’m going to keep 5 10% you know that that’s the thought process people have uh so even if I don’t sell it that is okay uh international allocation I must have because we don’t know what happens to rupee and then anyway you know to mitigate uh the country risk I’m not sure if you’re educating only two assets but if you are saying that uh to make it simple just keep in equity uh and dead in India. Then how do they counter those uh issues? First of all, when people say they want diversification, they don’t know what it actually means. Just because I add some percentage of gold in my portfolio, my portfolio is not diversified. That 10% gold is not going to protect me from anything. It’s just 10% gold. It’s just 10% of something. If the market the equity market falls by 50%, it’s not going to that 10% is not going to help me. If the rupee becomes worthless, that 10% is not going to help me. After listening to this, they are going to say okay, I’m going to take it to 33% of my portfolio. Yeah. Yeah. But then will they pay tax? My point is nobody sir that 10% 5% will not remain 5% 10% next year you will have 5% 10% today after 2 years when it becomes 20% or 25% do you have the conviction to say it doesn’t matter if I pay tax I will reduce it back to 10%. Nobody will do it they will just leave it and call it portfolio management and call it diversification. If you do not know how that 10% of gold or 15% of gold or even 30% of gold is going to change your portfolio, if you do not know how to even quantify that, why are you adding it? I should know what that 10% is going to do to me, right? At least on paper. Forget real investments. There are so many imaginary situations where you can put it on a piece of Excel and do whatever you want, right? People say all sorts of things in Excel from Excel, right? So at least put it in Excel and see what the 10% has done to you. If you’re so invest interested, spend one hour look at the data and see what the 10% does to you. What the 30% does to you assuming you do rebalance at least on Excel people can rebalance, right? Only then you must you must have a feel for what you want to do. People when people say international diversification they only mean fang stocks. They are not talking about Japan, they are not talking about Europe, they are not talking about Saudi Arabia. They are talking about the uh the the big tech companies that is all. And they will say international uh diversification whatever they’re just they just want a piece of Microsoft, Apple etc. That is all. And that is because they’re shining today. They have not shined at all time. The what people do not appreciate is that those stocks did not shine at all times. There were long periods of downturns where the stocks were underwater. Amazon was underwater for a long time. Would you have purchased it when it was underwater? You should ask yourself that. Ask yourself privately. Everything is down and they have been down for 2 three years. Will you purchase it 10? Most people will not. They want see it’s a it’s a shiny object syndrome. Whatever is shining they want more of that in their portfolio which is as immature as it gets. It is the school boy attitude wanting more of this chocolate that chocolate you know it’s it’s as immature. I don’t I mean it’s it it frustrates me and I don’t want to swear on uh you know a video here. uh it really but the problem is that I mean unless you keep portfolio management simple it is going to come back and bite you you should know what you are doing I’m saying I never I am not saying don’t invest in gold I’m saying do you know how to manage gold if it is there in your portfolio can you answer that question honestly most people cannot at least at least somebody must say I would appreciate if somebody says that’s A good question. I don’t know how to do it now, but let me add gold and then I will learn how to invest, how to manage the 10%. I will completely appreciate that. No, nobody said that even to me that much to they don’t want to manage anything because it’s tax. If you are scared of tax, you’re not going to get rich. the the uh idea behind doing this with most of the investors that I have interacted with their idea is I want to have positive portfolio return when equities tank Indian equities tank you know gold as well as uh most of the history says then uh same goes with correlation between India and US and uh with other countries. So if India is not doing well at that time the other country could could do well. So even if uh you know all of this combined takes my portfolio to 20%. So if uh the portfolio is down by you know 4% it was going to be down by 2% etc etc. I I know you know that doesn’t hold water but that’s the thought process that people have and I don’t blame them. You look at TV channels and all of that you know everybody is broadcasting this. That’s that’s fine. That’s true. But most investors don’t have a sound thought process. That’s my experience. That’s my the my problem is that it’s absolutely fine to say I’m hedging this, I’m hedging that. Absolutely fine. But do you know how to manage that portfolio when there is no need to hedge? When equity is doing well, in Indian equity is doing well and gold is not doing well. When fixed income India is doing well, will you still be invested with as much enthusiasm with in gold international equity and do you know how to manage those assets when those assets are not playing the big role that they are supposed to play that that question I have not had convict answers with conviction from most people ex I mean okay there’s one guy who answered me well but that guy was a actually a fund manager I mean you have That’s an exception not an example. Yes, this was my question that most of the people do not do uh rebalancing uh and reasons that they have is that you know I’ll have tax implications and let’s say I have to sell equity now but uh equity is tanking right now how do I sell it? you know that behavioral thing that comes in. Uh so they don’t do all those things. That is why maintaining asset allocation is extremely difficult. So would you suggest that somebody just goes with hybrid funds and multi-asset funds and if they have a fixed asset allocation you know they can have similar uh equity allocation but for new investment just go with hybrid and that takes care of asset allocation for them. No taxable expense for you. How many of such let’s say we we recommend that how many of such investors will stop with just one most of them will not they will say they will see another NFO and say oh is this better I will invest there the people have they are determined to clutter their own portfolios you cannot stop them they are just determined there’s a they heavily determined to clutter their own portfolios this the problem is that if you say I’m going to keep it simple and I want to buy a hybrid fund. But what hybrid fund will I buy? An aggressive hybrid fund is typically a good choice for but the problem is that you should understand that an aggressive hybrid fund typically holds like 70 to 80% equity approximately 75 okay let’s say 70 70 to 75%. But that’s a large amount of equity. I have seen people complaining when the market crashes they say oh the h aggressive hybrid funds are also crashing as much as the diversified equity fund of course they will crash some something that is with 75% equity will crash almost as much as 100% equity fund so you if you do not have the right expectations of risk you you will never be satisfied with anything and most people will never be satisfied with 1.5 they they just want to they’re always looking at something first they said okay I will stick to only Nifty. Then they said, “No, no, let me add a little bit of Nifty and X50.” Then Nifty Nifty Midcap 150 funds came. No, no, let me I will just use only Nifty Midcap 150. Then large large uh Nifty large cap large midcap 250 came. Then that’s the fund nifty. Then I’ll go to 500. Then came the factor indices quality factor low volatility factor alpha. It will never stop unless you tell yourself that’s the most important point. If you don’t have the right behavioral trait, you will not make money. Which is why I believe financial literacy cannot be spread. This is a spread. Financial literacy cannot be spread. People should have the right temperament. And most people don’t have the right temperament to be financially literate or to be wealthy. If you don’t have, you should say inaction is the most important aspect of portfolio management. See initially when you are a beginner there are some things you need to do emergency fund life insurance health insurance you build a portfolio you start investing that’s it after that it should be in action whatever happens except for basic portfolio management actions like rebalancing etc other than that whatever product comes to say I don’t want it I am done it’s inaction is the most important trait that most people don’t appreciate other than see financial services industry they are determined to confuse us they will be making newer and newer and newer products every year every month if you are going to get swayed because you are following this influencer that influencer and oh can I have 10% of that can I have 10% of this who is going to suffer not that influencer or that company your portfolio is going to suffer so I’m saying keep it simple but do you have the conviction to define what simplicity is for you. Each person’s simplicity is different. They don’t need to say for me without gold is simple. Some people can say with gold three assets is simple. Fine. You define your simplicity. But what is more important is you stick to it because the financial services industry is bound to confuse you. They will create options, more and more options. Take term insurance for example. In the olden days when I bought term insurance, there was only one product, term life insurance. If you pay until 60 or whatever age there nothing else now you have return of premium you can have monthly monthly premium term insurance you can have increasing cover decreasing cover all sorts of complications come in and the normal joy is confused what should I choose so it’s that’s the problem you should define your simplicity which is very hard okay so uh thanks for uh that uh now should someone have a separate at a medical corpus if they have good health insurance. Absolutely. Absolutely. Corpus is what how muchever medical insurance you have you need a corpus because see the you are we are caught between hospitals on one side who want to extract as much money as possible typically and the insurers on the other side who don’t want to pay who want to pay as little as possible. So you are caught between these two and therefore there will always be situations where there will be difficulty of uh the full claim not being processed or the claim itself being rejected or cashless being rejected. You need money. You need money to fund off. And there are so many uh procedures where which don’t come under uh health insurance where the because what is happening now is for especially for older people uh the home treatment has increased a lot. The options for home treatment, home based treatment has increased so much that uh you can’t cover that by insurance most of them. So you you are in so you need a huge corpus and so you have to that one thing I would say is that one of the biggest advantages of keeping your inflation a little bit higher, keeping your return expectations a little bit lower is that you will push yourself to invest more. If you push yourself to invest more over 15 years, 20 years, hopefully if luck is on your side, you may end up with a corpus larger than what your target corpus is for a director. That extra sum can be your buffer for medical expenses, can be your buffer for replacing your equipment, it can be your discretionary fund, you can even use it for traveling, whatever all that thing. That’s the reason why I’m saying you push it. But you can’t factor it now. You can’t ask a 25y old to add a little bit extra for medical expenses, add a little bit extra for your equipment breakdown. That guy will say, “No, no, I’m going to unsubscribe from you. You you are no good.” Want motivation, right? So let’s motivate them to some extent and say, “Okay, at least you start with something. Just get started. Do something. But over time, please reflect on your investments and keep changing those assumptions and push yourself to invest more. The single mantra for making wealth is more and more investments competent to your investments. Okay. So there is one question this is mutual fund specific. I’m not sure if you would be willing to answer that but I want to touch upon this fund because majority of the retail uh investors uh they invest in Parak Park flexi cap fund. Now uh and many of them they do not know what to do with this fund. Should they continue? Should they not continue? Uh because of the AUM issue. I’m not talking about the IDCW thing that recently came. What would be your suggestion to somebody who invested in this fund because of their value style investing? Do they get out because of the AUM issue? Yeah, that’s a good question. And the the answer is the same as gold. I want gold, but what will you do after buying gold? How will you manage your portfolio? Same question. Same logic here. Okay, you want to exit. What will you do after you exit? Where will you invest? Are you going to go and invest in another active fund and again after 2 3 years 3 years same thing will happen fund manager will change performance will change uh you know AUM may increase then what will you do go to another active fund or are you going to be happy and say no no I’m done and let me choose index funds and let me choose a simple index fund and leave it at that what are you going to do you have a plan the same thing like people who want to retire early I want to retire early I want to retire what are you going to do after retiring early not many People have a sound answer to that. Achieving financial independence is different. But wanting to retire early after achieving financial independence is a very different answer. How do you what will you do after retiring early? What will you do with your time? If you don’t have a solid answer to that, you should not be retiring early at all. Same thing. What will you do with your money after you exit Paragma? Because there will always be some problem or other with active funds. If you want to choose active funds, you must be ready to face years and years of underperformance. If you are not ready to face it, I have faced years and years of underperformance and I have also documented it. If you are not ready, then don’t choose activities. This is the problem. You should have the right expectations. I would say the biggest problem with parataric flexiap is the reliance on rajit takar. Yes, it is not the aum. The aum does not bother me too much because Rajiv Takar has been uh instrumental in keeping the fund in in in keeping the fund the way it is and the way it is performed. The philosophy is still there. But do do you have any evidence that the fund house has trained other people to take over from Rajie when he retires or when he decides to quit or start his own company as many fund managers do? We don’t know all that. So we don’t know. We don’t know all that. I mean people say I trust this AMC that is I don’t know. I mean don’t trust anything. Why do you want to trust you? What data do you have to trust anybody? You can’t trust any AMC. So you this this is an AMC in which the the late founder said dividends are unethical. I’m not sure if you have read my article on that. They I have I have seen him speak in the unit holder meeting saying dividends are unethical. Things change. So you don’t say I am I am trusting fund AMCA. I am trusting. When investors say they trust something, they do it without any data or any information. It is an instinct and most instincts are often wrong. Especially in personal finance, gut instinct, the the you know everything is wrong. Common, it’s common sense that this happens. Most of it is wrong. Don’t trust anybody. If you are so scared, take action. Otherwise, keep quiet. You can’t simply be here and there. If you want to take action, you should know what to do. Most people don’t know what to do. the same problem. If you are going to be indecisive, you can’t do anything in finance. You have the courage to say I’m going to stop all my hold investments in this fund and I’m going to move to another fund. Fine. How do you have the courage to do that? Most people don’t. They talk, they ask you questions, but they’ll never act. Long time ago, I uh read an article. I do not know if it is still true or not. Correct me if I’m wrong. uh that as per data that you saw there is no point of investing in midcap or small cap because they do not guarantee better returns and there is a higher risk too. What you essentially said is that if you want a little bit of spice add a nifty next 50 to it that should work for you. Now the question is if you see uh from co till now you know most of the people that have uh jumped in there is a plethora of investors and they just want to uh invest in small cap and midcap and that’s their goal. So what do you have to say about that? I don’t do you still first of all do you still hold that thought like do you still agree and follow that thought process or has that changed? I don’t think such investors will listen to what I’m saying or even be watching this interview. I I hope they are not. But the pro I mean they they will live and learn. But the point is most of them are young. So it’s okay. They will live and learn when they see the market cycles of mark midcap and small cap going up and down. Already they’ve seen some some uh small example of that. They will they will appreciate that in equity investing the most important aspect is lower portfolio volatility. Which is the reason why I like parakarik a lot because when the market falls the parakaric fund does not fall as much as the market. When the market improves the fund may not improve as much as the market. I don’t care about that. Over a long term if your downturns are protected you get good enough returns. Maybe sometimes even alpha but you get good enough returns. So that but that’s a process. Young people it’s fine but the older people investing in small cap midcap they may have issues. Also our markets are completely changing in character over uh see until 2020 or so. Nifty NX50 was uh Nifty NX50 and Nifty Midcap 150 had identical returns in terms of rolling returns over 5 years, 10 years as well. But then the Nifty Midcap shot away. It shot above Nifty next 50 and then it has started coming down and now the gap is not as much. So as the market depth increases, as more and more people come into the market, Nifty next 50 is going to become more and more large cap like. Does it make sense? No, it does. So because uh so therefore it riskreward may change over time. So you have to be careful with it. But it is still as of today it has been as volatile as ever and it uh it has been as frustrating as ever for anybody who holds it. But the problem I have with with a midcap index midcap index funds or midcap funds is that if you choose a midcap index you should be careful about what happens during huge illquidity issues in the market when suddenly the investors run away from the market and the market crashes. These funds can have trouble managing those portfolio because the AUM of a midcap fund increases by a large amount. Let’s say as big or at least 50% of the product per fund. Selling and buying large midcap stocks results in something called impact cost. There will be a difference in bid price and sell price. So this will create problems for the fund manager in tracking the portfolio. We have not gone through such cycles. That’s the problem in India. This is something that we should deeply appreciate. We don’t have much data in India in every aspect of financial planning. It’s only 20 years 30 years and the in that period the market is changing. For example, the kind of volatility that the Sensex had during the harsh meta scam I would say it is about half the volatility or even 30% of the volatility hugely. Sensex was not a large cap index in the 90s relatively speaking but today it is a large cap index so it’s a big change so everything is changing so we have to be careful to this dynamic that’s why I’m saying keep it keep your portfolio simple keep your return expectations as low as possible so that you don’t get disappointed okay so uh what has been your biggest learnings in the past decade of investing we keep uh learning learning every I keep learning something new every other year. So what has been your biggest learnings in the past decade? Nothing works all the time. Whatever you do, wherever you invest, whatever strategy you have, it will not work all the time. Whether you are an active investor, a passive investor, whether you want to trade, whether you want to time the market, whether you’re doing dynamical asset allocation, whether investing gold, whether you’re whatever it is, nothing will work all the time. There will always be periods when your strategy will underperform others and you have to push through that period. There’s no other choice. So, and you should never ever aim for what is the best out there. You should aim for what is suitable to your life and you should have the humility that going from point A to point B has got a million ways. There are million roots to go from A to B. I am choosing one route. It may not be it is I don’t know whether it’s the best path but temperamentally it is the most suitable path for me. At least as of now that is how I I see it. And as long as you have that, you know, that humility and awareness that you can’t choose the best opportunity, I think you should be okay. That’s that’s my biggest learn. Okay. Thank you. And what is the best way to park uh money for debt allocation? I’m not talking about APF, PPF because they have limitations capping and the lock in also. Uh so if you’re going to do asset allocation, you can’t withdraw from PPF or EPF. So what’s the best way to park for T allocation? Very tough question. It’s a very very important question. But the problem is our tax laws have changed and uh I completely disagree with taxing uh debt debt mutual funds as per slab because there there’s a capital market risk and you when you are taking that risk you should be rewarded for that risk in some way and I disagree with that but that’s how life is and uh therefore what has happened is most people don’t want to invest in debt funds because they’re taxed as per as as per slab the problem is people are always looking at tax, you should not look at tax. You should look at liquidity. You should look at the uh risk profile and of course the return profile. And therefore, if you want higher in um returns from debt, you must be willing to take risk. For example, parakar conservative hybrid fund is an excellent fund. However, it is risk conservative hybrid fund conservative hybrid fund. It’s an excellent fund for a as a for a long-term debt instrument. It’s an excellent fund, but it is risky. If you want a less risky option, you have Edel Wise uh shortterm index fund. I forget there’s a big name for it. All sorts of names to it. There’s a short-term index fund. They have only one fund. That’s a good fund with a about five years only. The bonds are about 5 years in maturity. The to duration is about 5 years which is some which is okay for a long term. I would say it’s a very good fund even for a long term you can use it but don’t expect too much in parakar conservative the returns are good but it will fluctuate a lot most people when they invest in debt funds they are not ready to take risk they want returns they want lower tax but they’re not ready to take risk what do you I mean it’s a you should you should temper yourself with the right expectations and risk awareness so majority of the people uh the apprehension that they have you brought up a very valid point about the risk but they think that if they’re investing in debt it’s risk-f free though that is not true as you mentioned there is a higher risk I feel but then uh tax is the major issue so do you think right somebody who can manage the one year uh period uh uh of amount probably in liquid or wherever do you think equity savings fund could be an alternate for uh you know debt instrument that way they’ll get equity taxation uh of if they withdraw after a year and uh obviously there will be some volatility but the equity portion is going to be lesser and then they’ll also get the benefit of tax. Are you ready to uh to appreciate how much these funds can fall when the market crashes? That’s the question you should ask. You should ask find out how much they how much these funds fell down when during uh March 2020 when the markets crashed and you should appreciate that. If you can handle that then you can see equity savings is a misnomer. It’s uh it’s a it’s a you you can’t save in equity. Can save in arbitrage maybe but equity savings has got a small amount of unhedged portfolio. So you should be aware of the risks. That’s my problem. Nobody wants to do the research. Everybody wants answers and you can’t get that in finance. You you I mean you it’s a very very hard thing to do. I would say don’t invest in equity savings. See whatever you do whether it is conservative hybrid, equity savings, there’s something called balanced hybrid. Now whatever you do there will be risks and those risks will only be seen when the market crashes. when the bond market crashes or the stock market crashes or together or whatever anything anything can happen. So at that point in time will you post in social media saying I I invested in funds uh in this fund saying it’s a safe fund but now look at how it has crashed and so on. I see people doing it all the time. So they don’t they they don’t have the re they don’t want to do the research and they want product recommendations. So it’s a marriage made in hell. it won’t work. Okay. Uh so thank you Patu. Uh it has been uh a great session and great learning session and I’m sure many people would draw uh many of the things that they could use uh in their own financial journey. Uh and uh they still remain motivated for financial freedom. Uh would they remain seeing this? No, they they should. That’s the goal, right? Uh but anyway uh thanks a lot uh really appreciate it. You guys can also uh visit freefinccal uh where patu writes uh his articles and then the his uh he also uploads uh information about finance on YouTube personal finance. Uh but if there is anything that you want to say. Oh no no it’s been a it’s been great talking to you. I hope I I’ve kept it reasonably uh focused. I’m not sure. Maybe I wandered off here and there, but it is a pleasure interacting. Thank you. Thank you.