Bucket Retirement Planning vs Systematic Withdrawals for Retirement Planning..

Retirement planning is not just about when to take retirement benefits. It is also about how much to take. You can use many methods to create a stable income flow for retirement planning.

If you’re planning for retirement, you’ve probably heard of bucket retirement planning. But what exactly is it? How does it differ from systematic withdrawals? What are the pros and cons of each approach? Let’s take a look!

What is Bucket Retirement Planning?

Bucket retirement planning involves using a set of funds to invest in several asset classes. These funds are dedicated to a specific portion of your portfolio, which is referred to as a ‘bucket’. This bucket is then used to make investments in different markets, including stocks, bonds, and cash.

As a result, your investments are diversified into different asset classes. Your consumption will be from a single bucket, but you’ll have a variety of investment options to choose from. With bucket retirement planning, you have complete control over the amount of money you take out every year. This allows you to invest your funds in stocks and other risky assets if you choose to. However, you’re also able to keep a portion of your funds in safer investments, such as bonds, to ensure you won’t run out of money if the stock market dives.

What is the Systematic Withdrawal method?

A systematic withdrawal method takes money from your retirement fund. All of your assets are treated equally in this method, and you receive a monthly income from them. The systematic withdrawal technique can be used to liquidate or sell investments proportionally to fulfil income demands. This helps maintain a balanced asset allocation across mutual funds and other sub-accounts. According to a famous 1994 research by Bill P. Begen, a retiree should take four to five per cent of their savings annually.

Points to Consider before choosing Bucket Retirement Planning or Systematic Withdrawal Method .....

Differences in Psychology...

Systematic withdrawals are easier to manage and more predictable over time. However, investors struggle with this method during a market downturn or correction. They may grow concerned when the value of their retirement account decreases, leading to risk aversion and poor decision-making.

Bucket retirement techniques are a great solution to address this issue. Because short-term investments are stored in cash or other liquid assets, a market collapse may only affect long-term “buckets” that retired individuals would be less worried about.

Similarly, retirees may have invested the same amount, but giving different labels to accounts might encourage them to take on varying degrees of risk.

These psychological advantages of bucket retirement planning may reduce panic-driven judgments.

Similarities in Allocation ..

Bucket and systematic withdrawal methods are comparable in terms of portfolio allocation and performance. Although one can use different bucket portfolio allocation techniques in other circumstances, the asset allocation mix of these strategies is similar. For example, person A may have 60% cash and short-term debt options in the first two buckets and 40% in equities in the last two buckets. In that case, it is a mix of 60/40 ratio between income and growth.

Conclusion

In principle, the bucket approach and systematic withdrawal method are comparable, since their asset allocations are pretty similar. However, there is a significant difference between these two techniques in practice because of investors’ cognitive biases. Investors are typically more comfortable with market drops and proper risk-taking when using a bucket approach than a standard systematic withdrawal strategy.

You can talk to your financial advisor to know more. 

This blog is purely for educational purposes and not to be treated as personal advice. Mutual fund investments are subject to market risks, read all scheme-related documents carefully.
Raja Bhattacharjee 

https://www.investmentjunctions.com/

 

 

Financial Minimalism and Financial Freedom

 

Most of us strive to be financially independent. While financial freedom may look different for different individuals, we all want to have multiple options at our hands. And the dream to retire early or not work for money is a common goal for many individuals looking to be financially free.   

One of the uses that can help you do that is financial minimalism.

Financial minimalism is commonly considered a philosophy and way of living that can assist in achieving financial independence.

By incorporating financial minimalism, you get the freedom of choice and the mental space to priorities what is most important to you in life.

Here are some of the ways to lead a life of a financial minimalist. 

The Right Attitude

The thing that always comes first when talking about money is the ‘right money mindset or the right attitude.’

Having the right attitude or mindset is the number one step to make it easier to succeed in your quest for financial simplicity.

It would help if you were motivated to achieve your objectives with an eye on the eventual goal of financial independence and potentially early retirement.

We know that consumerism’s pre-existing concept causes us far more harm than good and is the primary driver of excessive spending.

Spending less, breaking free from societal influences and reclaiming control of your finances is an empowering feeling. It can be challenging, but it is a highly gratifying process.

 

Financial Awareness

The second step is to be financially aware of your situation.

Your capacity to handle your money is undoubtedly an important indicator when it comes to money management. Tracking your money and keeping track of your expenditures can help you determine if you’re overspending on your ‘wants’ or if your ‘needs’ are being met.

Moreover, it is essential to keep tabs on the debt situation.   

One of the fundamental concepts of financial minimalism is accepting responsibility for your own decisions and taking the proper steps to correct the situation.  

Make a Budget & Follow it

It is crucial to make a budget and give every rupee a place to lead a minimalist financial life. You can do that if you are aware of your financial situation.

The first step is to recognize and differentiate between your needs and wants. Needs are expenses that we can’t postpone. For instance, rent, transportation costs, utility bills, insurance premiums and loan EMIs constitute needs. Anything else that you can quickly shift to the next month is a want.

After you meet your needs, the next step should be to keep money aside for investing purposes. You can save the remaining amount for any emergencies. 

Financial Sustenance

Having financial freedom is one of the main reasons behind the adoption of financial minimalism. However, to take care of our livelihood needs, we need to arrange our finances so that our assets and investments can support our lifestyle even if we quit working.

Living frugally and saving and investing a large portion of our earnings in asset classes that can generate income are some of the ways that can help us do that.

This might be anything from rental properties to stock options that generate dividends. Investing in mutual funds consistently through the Systematic Investment Plan (SIP) can also help build a corpus and withdraw the required requirements regularly.

Diversifying your investment portfolio can help you reduce your dependence on a single investment option.

Conclusion:

Many people around the globe have adopted minimalism as a way of life. It helps to bring clarity and focus to your life. Moreover, financial minimalism can also be a way to achieve financial independence.

In this article, we have talked about four ways to guide your path to financial independence through financial minimalism.

This blog is purely for educational purposes and not to be treated as personal advice. Mutual fund investments are subject to market risks, read all scheme-related documents carefully.

Raja Bhattacharjee

https://www.investmentjunctions.com/

 

                                           Flexi Cap Fund: Know About the New Mutual Fund Category

After the multi-cap fiasco, the market regulator, SEBI has introduced a new mutual fund category called Flexi Cap funds. 

Multi cap fund is a category of equity fund that can invest in large cap, mid-cap and small-cap stocks. However, these funds focused more on large caps and fund managers invested a significant portion of the portfolio in large-cap stocks. To make multi cap funds true to its label, SEBI directed fund houses to invest a minimum of 25% of the fund’s portfolio in large cap, small cap and mid-cap stocks.

What is a Flexi Cap fund?

In the first week of November, SEBI introduced a new category under Equity Schemes called Flexi Cap Fund. Flexi Cap Fund is a mutual fund scheme that can invest across all sizes of market capitalization, i.e., large cap, mid-cap and small cap. Fund houses have to invest a minimum of 65% of total assets in equity assets.

Fund houses can launch a new scheme or convert an existing scheme into a flexi cap fund.

What’s in it for investors?

As a scheme investing across large, small and mid-cap stocks, flexi cap funds are dynamic in nature. The diversified investment also facilitates in mitigating the risks and absorbing financial shocks from a volatile market.

Now fund managers have the flexibility to invest in stocks irrespective of the size, as flexi cap funds can invest dynamically across all market caps.

Companies of different sizes come with their own set of advantages and disadvantages. Depending on the market outlook and current scenario, fund managers can invest in companies that are better suited to fulfill the investment needs of their investors. 

The flexibility of flexi cap funds to invest in companies irrespective of the size is a great benefit for investors. For a risk-averse investor, flexi cap fund is a wise choice, as there is no mandatory percentage of allocation to each cap. Besides, a diversified investment in large cap companies may reduce or counterbalance the risk often associated with mid and large cap companies. 

What about the existing multi cap funds?

SEBI has provided the option to fund houses for converting an existing scheme into a Flexi Cap Scheme. It can simply be a change in the scheme category or with changes in their fundamental attributes.

However, Mutual Funds may also choose not to convert to flexi cap fund as they deem fit. They may also convert these funds into another fund category. In both these cases, their status will remain the same and Mutual Fund House will have to followthe norms and regulations of that scheme category.

What should investors do?

As fund managers can invest in a flexi cap as per their market outlook, it can be an ideal investment option for risk-averse investors. Many mutual fund houses may convert their multi cap schemes to flexi cap fund and continue operating as earlier.

If a fund house has not converted their multi cap fund scheme to flexi cap scheme, investors need to tread carefully as your allocation to mid-cap stocks and small-cap stocks might increase. Until any official announcement from your fund house, you can wait and invest conservatively in the fund.

You can talk to us  to know more.

This blog is purely for educational purpose and not to be treated as an personal advice. Mutual fund investments are subject to market risks, Read all scheme related documents carefully.

Raja Bhattacharjee

https://www.investmentjunctions.com/

Simple Steps to Never Run Out of Money

 

  Simple Steps to Never Run Out of Money

Do you earn a handsome amount of money but have no clue where your money goes? Do you run out of money every month?

This blog is about the best ways of staying in control of your finances and never run out of money. We will discuss how to stay in control of your debt, avoid frivolous spending, and optimize your income.

1. Keep track of your income and spending

Keeping track of your everyday spending may appear tedious, but it is the most effective approach to avoid unnecessary financial withdrawals. You will become more aware of how you spend your money after this exercise. You may find the flaws in your budget by looking at the cash withdrawals at the end of each month. Once you identify the flaws, the following step is to eliminate any unnecessary costs to free up resources that may be put to better use elsewhere.

2. Make projections for future requirements

Determine your sources of income and spending. Future financial obligations or needs, such as the amount of money that you will need to maintain a particular quality of living, the amount needed for retirement, and so on, can be predicted in advance. For correct calculations, you need to include inflation. When your financial situation changes because of shifting life objectives, you must account for these changes in your future forecasts.

3. Make saving a top priority

We all have seemingly limitless ambitions. Prioritizing helps you to discover and focus your efforts on the most essential goal at any given time. The first item on your priority list should be “saving.” Saving compels us not to get goods now so that we can have greater ones later. Once you receive your pay, you should set aside a portion of it for savings. Ideally, you should set aside 20% to 40% of your salary for savings. You can spend the rest of your money for other purposes.

4. Investment is equally important

Saving is a good habit. But it’s also vital to put your money into growth opportunities that will help you develop a healthy portfolio. As a general guideline, invest a percentage of your money equal to 100 minus your age in stocks. For example, if your age is X, invest (100-X) % of your funds in equities. Equity has traditionally delivered a CAGR of about 15-16% over 15-20 years, making it an appropriate investment instrument for medium to long-term goals. The easy way to invest in stocks is through mutual funds. You may get the benefits of diversification by going the mutual fund way.

5. Put the power of compounding to good use

Using Systematic Investment Plans, investors may make compounding work to their advantage. This also helps them to be more disciplined in their investment. After 30 years, a monthly investment of Rs 10,000 in a SIP in an equities mutual fund with a 12% annual return results in a corpus of Rs 3.2 crores. Even if one does not have much money, beginning a SIP early on can help one gain a lot of money over time.

6. Save for a rainy day

Any emergency has the potential to deplete your resources. In the event of such a calamity, having an emergency fund separate from your savings and investments can assist you in meeting unanticipated financial obligations. An emergency fund should keep you afloat for at least three months, even if there are no inflows. You may automatically save a specific amount from your salary towards an emergency fund. You can also invest in options such as short-term debt funds or liquid funds as an alternative.

These were the six tips that can help you from running out of money. Consult us to know more and make sure that you never run out of money.

This blog is purely for educational purposes and not to be treated as personal advice. 

Mutual fund investments are subject to market risks, read all scheme-related documents carefully.

Raja Bhattacharjee

https://www.investmentjunctions.com/

Your Health Insurance Policy should be protect from "MEDICAL INFLATION "

   

     Your Health Insurance Policy should be protect from  "MEDICAL  INFLATION "

Inflation protection: Medical inflation in India is rising sharply, much 

faster than the rise in prices of other goods,  healthcare inflation in India is 15 per cent a year as compared to overall inflation of 6-7 per cent in the past few years, A health insurance report published by the Insurance Regulatory and Development Authority (IRDA) of India 

published in 2011 says the average claim in case of major diseases was Rs 1,34,550 in 

2009-10 compared to Rs 98,101 in 2007-08, a compounded annual growth rate of

 17 per cent notably, the average claim paid in 2009-10 was just Rs 23,000.

The global pandemic has jumbled up all the previous data, but has also increased the importance of a proper health coverage to protect against the medical inflation.

 With the cost of treatment becoming more and more expensive every year, it is only natural that you would want a bigger cover a few years from now than what you have today. 

This is where an inflation protection rider comes in. This rider in your health insurance 

policy increases your sum insured by a defined percentage at specific periods of

 time to keep up with inflation.

You should  design  your Health insurance policy in such a way that it will be meaningful in every stage in your life, it is usually worth paying a small incremental premium towards these benefits.

Raja Bhattacharjee  

https://www.investmentjunctions.com/

                                  The Risk of High Salaries

1) If People Retire between 45 & 50 (instead of 60) as the trend seems to be these days, Employees stand to lose 80% of their Wealth Potential .

2) The 10 years between 50 and 60 Yields the Maximum Wealth for an Employee and losing this decade is not the same as losing any decade. The years between 50 to 60 is the Golden Decade .

3) Companies may treat a loss of a 10 years career span as a 20% reduction  but if one digs a little deeper the real story emerges; ie a 20% Career Reduction saves the Company 80% Salary Cost

4) Thus by truncating an Employee's career duration by just 20%, companies stand to save 80% of salary cost  .

5) This is yet another dimension of Compounding that not many individuals understand.

6) Therefore a very high starting salary actually spells doom for an employee because higher the starting salary brace up for an even earlier retirement making the equation work even better for the Employer (it could actually make the employer save 90% of Salary Cost).

7) The Irony is the best people who have scored the best marks in the academics and who are the smartest succumb to the lure of High Salaries.

https://www.investmentjunctions.com/

How Can You Claim Mutual Fund Units After Death of the Holder?

How Can You Claim Mutual Fund Units After Death of the Holder?

Most of us invest in mutual funds or other investment options to achieve our individual and family member’s life goals. But do you know the process that your loved ones have to carry out to avail mutual fund investment after you die?

After you die, the fund houses transmit the mutual fund units to the surviving unit holders or nominees and legal heirs.

Unlike our previous generations, most of us don’t have any physical investment statements for our family members to find out after our death. Hence, your nominees or heirs must know your investments. Tell them the procedure that they need to follow after your death to take the best course of action.

While most fund houses have a standard procedure for transmitting mutual fund units, there might be a slight variation in the process among the different fund houses.

You can download the required forms and annexures from the mutual fund house’s website.

During transmission of units, three types of situations can arise:

1.Transmission of units to surviving joint holders

2. Nominee is registered

3. Nominee is not registered with the mutual fund

Here’s what you need to know and do in these three scenarios.

Read more »

 

The Age of Geographical Freedom has Arrived 

1) The work from Home Social Experiment which was thrust upon us has completely changed the world we live in.  

2) By and large the WFH was not only a massive revolutionary experiment by was also hugely successful

3)This awesome Experiment has given birth to a new concept which may be termed as Geographical Freedom;  the Freedom to work from anywhere in the world is Geographical Freedom, a kind of Freedom like we never knew before 

4) There will be new Business Models based on the "Share Concept" like the Airbnb kinds that will will emerge & pivot around the Geographical Freedom concept

5) Instead of going on short holidays, we will be able to live a life of holidays and experiences

6) So let's say you subscribe into a Airbnb  kind of company based on the "Share a Service" concept

7) The company will allow you to choose a series of destinations nationally and even internationally

8) Let's say Mumbai (3 locations within the city), Goa, Mysore, Kunoor, Gangtok and so on 

9) You decide to stay for one year each in these places and all you need to do is pack your bags in your car and you are off to your next destination. 

10) This is now easily possible because a lot of People can work from home as they did so effectively during the Lockdown

11) Secondly Education of their Children whether school, college or even University can easily go completely Online as we have successfully experimented

12) There will be several online clubs that will enable that friends stay connected, read together and play together and never feel the distance between them

13) The OTT Platform will ensure that their kind of Entertainment is there everywhere they go

14) Better technology and devices will make connectivity even better and the experience more real than ever before 

15) The company will in every location build similar looking "Office Room" in the homes to give that feeling of being in one office

16) The same can be done with the "Education Room" in the homes

17) The entire service of support system like  chauffeurs and maids will be standardised in every location and will be made to appear as it nothing has changed like one feels when you stay in your preferred chain of hotels

18) The Swiggys and Zomatos will provide the supply system for food and provisions

19) The Ola and Uber will provide the transportation system while Practo or some similar system will fulfil health related needs

20) One or two single company will tie up will the various online systems to provide the customer a seamless experience

21) Every city will have an offline club where you may invite your friends to come and stay and in this way you get to meet your offline needs of connecting with one another. 

22) At the same time these "Offline Clubs" will help you grow your friends and influence locally as well because this kind of offline platform will allow you to connect with locals and also with people like you who belong to the Geographical Freedom System having travelled from different geographies. Our exposure to such rich diversity of culture will enrich our souls

23) Mankind perhaps had never come so close to living a Fairytale life

24) But now the forced Social Experiment coupled with Advanced Technologies & Explosion in the Digital Payment Systems together have all brought us to the cusp of a this kind of a fairytale world 

25) This Fairytale World System will have several benefits other than those explained above 

26) This System will lead to more 

a) Equitable distribution of population

b) Make us more adaptable to different cultures

c) Solve outstanding Regional and Parochial issues and deadlocks because of equal development of all geographies which will at last solve the problems that emerged out of  lopsided development of geographies 

d) We will become truly world citizens as this concept extends Nationally and Internationally and this will help in resolving racial discrimination across geographies

e)  And last but the not the least this kind of a System will help the Planet and the Environment become cleaners and healthier as we declutter and decongest

This is how I see the Possibilities of Tomorrow and I would certainly subscribe to this concept of Fairy-tale living, discovering and growing.

https://www.investmentjunctions.com/