16 Mar 2021

My DIY investment journey: an interim update

What does the journey of a typical DIY investor look like? (DIY is short for ‘do it yourself’ — rather than taking help from advisors or readymade tools.) I don’t know how much I can generalise, but my DIY journey has been filled with mistakes and revelations.

When I started goal based investing early in 2020, I used Kuvera’s goal planner. In fact, before Kuvera I hadn’t even heard of the phrase “goal based investing”. Within a few months, I decided to switch to DIY investing. I decided to take full control of the investments because I was just not comfortable investing without knowing the full glide path in advance. I drafted an elaborate plan using a spreadsheet with my own glide path for every financial goal I had.

Mistakes: an essential ingredient for progress?

It’s been around 8 months since then. In this short time, I have found and corrected an innumerable number of mistakes in my plan/spreadsheet. Mistakes such as not accounting for taxes. Or having too much exposure to equity. Or getting cell addresses wrong in spreadsheet formulas. Many, many such mistakes, big and small.

Some mistakes were annoying but harmless. Some were outright dangerous with a potential to cause capital loss. Despite the bumpy ride, I am pleased with my journey so far. If I had to start all over again, I’ll happily retrace the same path.

With months spent on tweaking and tuning, my investment planning spreadsheet has become sophisticated. Within the spreadsheet, I have a mini “dashboard” that shows informational and actionable data such as how much I am falling short compared expected corpus size, whether the asset allocation is out of whack, how much money to move to reset asset allocation, etc.

Asset allocation mistake

One big mistake I made was to allocate too much to equity in the initial year. Not because I wanted to, but because I made a mistake in the math. I have tweaked the plan to compensate for that mistake, but now I see that I’ll never have to buy more equity if everything goes according to plan.

The first column in the screenshot below is the year, and the second column shows the [truncated] amount I’ll be investing into equity. You’ll notice that for every year except 2020, the number is negative. This means I’ll keep selling some equity every year for 20+ years and might never have to buy more equity.

Screenshot of my spreadsheet showing that I only have outflows from equity investments throughout the rest of my investment horizon

Fixed income, not equity, is the bigger pie

Another interesting thing I noticed was how little I should allocate to equity. I am an irrationally greedy investor who wants to put as much money as possible in equity. But turns out, I should allocate less than 25% to equity in most of the years! To be honest, I am a little disappointed. I wanted to experience the violent volatility of equity, but my plan says I should invest most of the money in fixed income instead! 🙁

Screenshot of my spreadsheet showing target asset allocation. The first column is year, second column shows equity %, and the third column shows fixed income %. The big drop in equity allocation from 2020 to 2021 is not intentional. I overallocated to equities in 2020 by mistake.

This was an interesting revelation for me. This means a few things:

  • I didn’t know I wanted the thrill of equity investments. Without this exercise, I wouldn’t have known that about myself.
  • I pretty much don’t have to think about the choice of equity mutual funds to invest in. Redeeming equity and buying fixed income will be the usual thing I’ll be doing every year. (There will still be times when I have to buy equity for rebalancing. But I won’t have regular equity SIPs.)
  • Until now, I didn’t think much about my debt portfolio because debt was a “boring” investment. My debt portfolio is also very simple with just one ultra short term debt fund. But now, I think I should pay more attention and look for opportunities to optimise the debt portfolio.
  • A clarification on the previous point: complexity in a portfolio is not good, and I am well aware of that. However, I am not very comfortable leaving a big chunk of the money in one debt fund. This exposes me to fund manager/AMC risk, for example. Having more funds will help me sleep better, I think.
  • Investing in more debt categories than one is also an intriguing option. I’m thinking about the options. I’ll post my plans in future blog posts as the plan solidifies.

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