Firstly, I am a big fan of goal based investing and not just creating a simple portfolio overall. But this trouble free portfolio can be used to beat inflation and achieve your financial goals.
If your attitude towards investing is, I don’t want to keep tracking on a monthly basis and make changes, but have a requirement to beat inflation (in the long run) – there are easy ways to do that and this article is especially for you. All you require is patience and a bit of “passiveness”.
To start with if you are an employee, I would assume that you have invested and used up your (EPF+VPF) quota. Please read the article on how to make wealth out of EPF and Power of Compounding.
We will use a combination of two simple financial instruments to create this passive investment portfolio.
- Equity Mutual funds
- PPF (Public provident fund)
The rationale to choose these instruments are that Mutual funds will help you beat inflation and PPF would give you access to steady flow of money. Remember these are long term portfolios and should not be seen as ways to create your cashflows for immediate needs.
Now there is an ocean of options in the mutual funds and which do I choose. Two options here – Pick a pure large cap equity fund with a good history OR pick a large cap equity index fund. If you are going to be completely passive, you might pick an index fund (any Nifty 50 fund with low tracking error) and forget everything.
Scenario #1 Agressive
- 80% Equity Mutual fund
- 20% PPF
Tip – Each individual PAN Card holder, can invest in PPF in their own names
Scenario #2 Moderate
- (100 – your age)% Mutual fund
- (Your age)% PPF
What do I mean by this? If your age is 30. You invest (100-30 = 70%) 70% in Mutual fund and 30% in PPF.
There is no RISK FREE investment when you invest in equities, there is always market risk. Important thing to remember is that not taking market risk and not investing in risky assets, is not being RISK FREE. You create a risk for yourself called LONGEVITY RISK. Longevity risk is the risk that I outlive my investments or money saved for retirement. If your answer to beat inflation is real estate, then there is a risk called Liquidity Risk in such investment. Every investment has risks, it is important to understand and not over expose, but embrace them to our advantage.
Good luck and happy investing 🙂
