HomeFINANCEJagruk Talks with Dr. Pattabiraman: How to plan for retirement

Jagruk Talks with Dr. Pattabiraman: How to plan for retirement

Dr. Pattabiraman believes that true wealth is not solely about money, and he learned personal finance out of fear of being financially unprepared. He is a professor of Physics at IIT Madras who started learning personal finance out of fear. He is a finance enthusiast and researcher, who launched freefincal.com in 2012, which offers free financial calculators. He has developed innovative financial calculators utilized by the general public and SEBI-registered financial planners. His background and expertise in finance make him a valuable resource for retirement planning and financial calculations. The text discusses a robo-advisory template created by him, which assists individuals in creating a smart Excel sheet for retirement financial planning. He is known for teaching personal finance through data-driven research articles and YouTube videos, with the author personally benefiting from his content. 

Childhood days

He grew up in a large joint family and emphasized the importance of family bonds, considering his cousins as siblings. He believes that spending time alone is essential for creativity and suggests that excessive socializing can hinder one’s creativity. His parents supported his choice to pursue physics, despite societal pressure to pursue more conventional career paths. It emphasizes the importance of pursuing one’s creative interests and passions in life. 

Early career

  • He had a dream of becoming a physicist and pursued it, but it took several years of education and postdoctoral work to secure a full-term job in the field.
  • The path to becoming a physicist involves three years of BSE, two years of MSE, five years of PhD, and postdoctoral stints before getting a job in the field.
  • He became a professor at IIT Madras after research stints in Germany and at the Indira Gandhi Center of Atomic Research in Kalpakkam.

He got into investing and created data-driven content. His passion for this field is attributed to a sense of fear rather than a deep passion for it. He got his first full-time job in early 2006 at the Indira Gandhi Center for Atomic Research. Shortly after receiving his first salary, his father experienced severe health issues, leading to a significant change in their family responsibilities. His introduction to family life and responsibilities was sudden and unexpected due to his father’s health problems. Initially, he had no awareness of financial responsibility due to being preoccupied with work. They faced financial challenges when unexpected hospital bills started accumulating. He received help from his brother-in-law, who provided an interest-free loan of three lakhs, demonstrating the importance of having a financial support system in times of need. In 2006, he had a net worth of three lakhs, but this amount has grown significantly over the years. He recognized the importance of health insurance and got a policy for his mother, which is still active today. Thus he began his financial journey with a net worth of minus three lakhs, indicating they had debt at the start.

He faced financial difficulties due to a three-month salary gap caused by a technical glitch and had to consider extreme measures like selling valuable items for medical treatment. The situation improved when he got into IIT, suggesting that education and career opportunities can play a crucial role in stabilizing one’s financial situation. The importance of planning for retirement and being prepared for unexpected financial setbacks to avoid desperate measures like selling valuable assets. He emphasizes the importance of avoiding financial difficulties in retirement and reflects on a past situation where they had to borrow money due to lack of savings. He suggests a key step in planning for retirement is to identify the specific financial needs and expenses that will arise in the short-term (3 months), mid-term (6 months), and long-term (10 months and beyond).

He emphasizes the importance of planning for retirement and ensuring that they have the necessary funds when needed. He mentions that he began his retirement planning journey by using Excel for calculations, despite initially lacking knowledge in basic mathematical operations. His motivation for retirement planning stemmed from his familiarity with math through its relevance in physics. Online resources and forums are valuable for retirement planning. Knowing what you want to achieve in retirement is essential before using tools like Excel. Clarity about retirement goals enhances the effectiveness of planning tools like Excel. The accessibility of learning video editing online for free, particularly through YouTube tutorials. It highlights the distinction between learning investing and learning video editing, suggesting that the latter may be more challenging.

Speaking of finance experts, we also had the pleasure of diving into the insights of Prof. Prasanna Tantri from ISB, who is known for his deep understanding of financial markets and economic theories. His work sheds light on how economic principles can shape our understanding of the financial world, making it easier for us to plan for our futures. If you’re curious about the intersection of finance and economics, check out our talk with Prof. Prasanna Tantri. His expertise adds another layer of depth to our financial planning conversations, especially when thinking about retirement.

Challenges faced while learning to invest

Dr. Pattabiraman emphasizes that successful retirement planning is not limited to super intelligent or nerdy individuals. He also shares his personal experience of being an early adopter of the NPS (National Pension System) as a government employee. Dr. Pattabiraman mentions that initially, the NPS funds were not invested in the market. The speaker emphasizes the importance of planning for retirement before making investments, as investing without a clear plan can lead to mistakes and a cluttered portfolio. They initially relied on their employer’s plan, earning around 8%, as their sole investment for retirement.

A common mistake people make is by investing without a clear strategy, often driven by the need to save taxes or provide proof to their employer, leading to a disorganized financial portfolio. He did not initially plan for retirement and focused on learning instead. He began investing in mutual funds, particularly from HDFC and Sundaram, as he gained knowledge. He used to visit the offices of these mutual funds to make purchases. The speaker started his retirement planning with a Rs 1500 SIP (Systematic Investment Plan) during the 2008 market downturn.

Dr. Pattabiraman initially had limited knowledge about investing and relied on SIP to start his journey. Over a period of 6 to 12 months, he gained valuable knowledge and experience in retirement planning without making significant mistakes. He also discusses personal mistakes in retirement planning, such as not buying an LIC policy, due to the absence of parental guidance. The absence of parental advice, particularly from a father who fell ill, is highlighted as a factor that influenced his retirement planning choices. It reflects on how his portfolio might have consisted mainly of LIC policies if his father had been healthy and provided advice, emphasizing the impact of parental guidance on financial decisions.

Handling the 2008 financial crisis

In times of financial crisis, like the one in 2008, some people tend to withdraw their money, but he didn’t know about the market’s fall during that period. He emphasizes the importance of not obsessing over daily market fluctuations when planning for retirement. Experiencing a period of market volatility from 2009 to late 2013, during which the portfolio consistently showed losses.

The key takeaway is to focus on long-term investment strategies and not get discouraged by short-term market movements when planning for retirement. Dr. Pattabiraman discusses his experience with financial losses and the initial fear from family members. The importance of emotional considerations when planning for retirement, suggests that emotions cannot be completely disregarded in financial decisions. The importance of planning for retirement to avoid financial dependency in the future.

He suggests the need to build wealth and financial independence for a secure retirement. He had a realization about retirement planning when he noticed the portfolio’s growth. The key takeaway is that successful equity investing involves consistent contributions without trying to time the market.

Importance of patience in financial planning

Patience is crucial when planning for retirement, especially during periods of market stagnation. Emotional attachment to past experiences can help foster patience in retirement planning. He received valuable advice related to retirement planning. His personal anecdote about meeting a teacher during an IIT interview and sharing the news of his father’s death. The teacher’s response is highlighted, suggesting that, he should be happy to face challenges at a young age. 

Story behind the FreeFinCal logo

The FreeFinCal logo is described as an inverted percentage sign, symbolizing the idea that our financial shadow, or financial concerns, will always be with us. It seems to touch upon the notion that experience and adaptability play a role in successful retirement planning. 

Risk management

Retirement planning involves managing the inherent risk associated with investments, as there is always some level of risk regardless of the type of return. It’s important to consider both returns and risks when planning for retirement, with the percentage representing return and the inverted percentage representing risk. Risks during the period of 2009 to 2013 as a potentially important context for retirement planning. Dr. Pattabiraman also mentions the role of considering inflation and projected expenses in managing risk.

He has experience in handling risk in retirement planning. He also discusses the importance of planning for retirement by considering the need for a portfolio with a return higher than inflation after taxes to maintain one’s lifestyle. He highlights the significance of patience in investment decisions, possibly based on historical data and stock market trends. 

Inspirational people

Influence of people who have made significant impacts on one’s life, even if they are not from the same field. He discusses a personal experience with a teacher named Mrs. Bina Gokule and the realization of the author’s calling to teach. He references PV Subramanyam in the context of finance. His unique perspective on investing, emphasized his early advocacy for putting money in an index fund, a suggestion that was ahead of its time. 

Two influential individuals in the field of personal finance PV Subramaniam and Melvin Joseph. Melvin Joseph is highlighted as a SEBI-registered investment advisor who works as a fee-only advisor in Navi Mumbai, focusing on helping the common man rather than high net-worth individuals or NRIs. Melvin Joseph’s career transition from a cushy insurance job to becoming a fee-only financial advisor is emphasized. Melvin Joseph has set his fees at an accessible level, making his financial advisory services more accessible to a wider range of people. 

Which is more important: Earning, Saving, or Investing?

Earning is the most important aspect when planning for retirement, as it serves as the foundation for both investing and saving. The expectation of rewards can lead to financial problems, highlighting the importance of a realistic approach to retirement planning.

The significance of earning before focusing on investments and savings in the retirement planning process. Prioritize savings and investments to plan retirement effectively, it’s crucial to strike a balance between saving and investing. Knowing when to save for short-term goals and when to invest for long-term goals is key. Embrace market risk early. Young earners should prioritize developing their skills and increasing their income over the long term. Taking on market risk in the early stages of your career can be advantageous for building wealth for retirement.

Focus on skill development and income growth to secure a comfortable retirement. Concentrate on improving your skills and consistently increasing your income over time. This proactive approach can contribute significantly to your long-term financial security. 

The issue of impatience when it comes to financial planning and retirement, particularly among younger generations. He shares an anecdote about a junior who wants to withdraw from a mutual fund due to the expense ratio, highlighting a lack of understanding about long-term investing.

Dr. Pattabiraman highlights the misconception that some people have about mutual funds, expecting immediate returns and switching when they don’t see quick gains. He emphasizes the importance of educating oneself about how mutual funds work before investing, as many individuals only begin to learn after investing, which can lead to financial problems.

The importance of planning for retirement in a more realistic and long-term manner is emphasized. Planning for retirement should consider the impact of market crashes, as they lead to temporary declines followed by recoveries, but can also result in extended periods of slow growth, causing significant time loss if not managed properly. It is crucial to have a well-thought-out retirement plan to avoid losing valuable years of financial growth and security.

Advice for people who experience long periods of no return

While planning for retirement, one should consider the impact of market crashes, as they lead to temporary declines followed by recoveries, but can also result in extended periods of slow growth, causing significant time loss if not managed properly. It is crucial to have a well-thought-out retirement plan to avoid losing valuable years of financial growth and security. Advises against expecting quick returns in just three or four years, especially with an all-equity investment approach, as it’s highly unpredictable and risky. Addresses the challenge of investing during periods of market stagnation and suggests seeking advice from experienced investors who have faced similar situations. Assess your own financial needs and goals before planning for retirement or any investment, take a moment to evaluate your financial needs and objectives. Consider why you are investing and when you will need the money.

  • Short-term goals require conservative 
  • Avoid hasty decisions in volatile markets 

It’s important to have a clear understanding of your investment horizon and align your choices with your financial timeline. Plan retirement and financial independence with a long-term perspective, focusing on a 15 to 20-year horizon. Invest money primarily in equity for retirement to ensure stability and growth over the long term. Separate funds for short-term needs and allocate money for long-term financial goals to secure a worry-free retirement.

Data driven decisions to make investment

  • Don’t try to increase your retirement goal and decrease it simultaneously; focus on one approach.
  • Adjust your dreams and standard of living to align with your retirement plans.
  • Use mathematical and analytical skills for informed investing in retirement planning.

The data analysis has taught them lessons about market risk and highlights that market volatility remains relatively constant over time. It can help individuals make informed decisions about their investments and retirement planning. The text discusses the uncertainty of long-term equity investing for retirement planning. Compounding and staying invested in financial planning have a good role. He suggests that despite common beliefs, there is no concrete proof that long-term equity investments will guarantee success in retirement planning. 

Planning for retirement requires realistic expectations. There’s no guarantee of high returns, and it’s important to understand that equity markets typically offer a premium above inflation, not necessarily the 15% return some people expect. Equity market returns may not meet high expectations. While equity markets can provide a reasonable chance of beating inflation, they may only yield around 9%, which could fall short of the 12-15% return that some individuals anticipate.

The importance of aligning investments with retirement goals. To ensure sufficient retirement savings, it’s crucial to invest appropriately based on realistic return expectations rather than overestimating potential returns. Past performance in the mutual fund industry is not indicative of future performance, and this disclaimer should be taken seriously. Lessons can be learned from analyzing past data, but it’s important not to completely avoid investing in equities due to the absence of guarantees. People often overreact to the absence of guarantees when considering equity investments, but it’s essential to understand the nature of investment risks. The text emphasizes that there are no guarantees in various aspects of life, such as marriage, education, and career.

Retirement planning involves managing investment risks, with the key being to ensure that the risk remains reasonable and manageable. Long-term equity investing is recommended for retirement planning as it allows for better risk management over time.

Understanding the sequence of returns is essential in retirement planning, although the text doesn’t provide detailed information on this aspect. The timing of when you start your SIP (Systematic Investment Plan) in a mutual fund can significantly impact your returns over time. Different starting points can lead to varying returns, including positive, negative, or very high returns, due to the sequence of market performance. 

Retirement planning is compared to maintaining a relationship, emphasizing the need for continuous effort and attention. People often seek mutual funds for SIPs with a fixed 15-year horizon, but this approach may not be suitable due to changing market conditions. Index investing is recommended as a strategy to adapt to changing circumstances in retirement planning.

Youngsters demanding a guarantee

Retirement planning can be simplified by choosing between actively managing investments, using index funds, or shuffling mutual funds. Older generations who experienced job security may emphasize guarantees, but this is less relevant in today’s job market. Government bankruptcy in the early 90s led to increased interest rates in the debt markets. Higher government debt resulted in higher interest demands, impacting financial planning.

The situation changed in the 90s and 2000s, suggesting the importance of adapting retirement plans to economic shifts. India has shifted from communist policies to capitalism, making most investments market-linked, including PPF, EPF, and yield trades.

The long-term performance of these market-linked investments has shown a decline. The changing landscape of investments in India does not provide specific retirement planning advice. Interest rates are currently increasing, with the RBI raising the repo rate, but this trend is not permanent.

Young individuals should not base their retirement plans on what their parents or grandparents did, as the financial landscape has changed significantly. Emphasize that retirement planning should focus on lifestyle rather than just returns on investments. Many people today desire to live a lavish lifestyle, often driven by the influence of social media and the desire to outdo others in terms of luxury travel and spending. Excessive spending is a significant issue, especially when combined with the expectation of guaranteed financial returns, which can lead to financial disaster. He talks about the importance of responsible retirement planning to avoid financial pitfalls caused by extravagant living and unrealistic expectations.

In another enlightening discussion, we explored the complexities of government spending with Dr. Prasanna Tantri, unravelling its impact on the economy and, by extension, our personal finances. Understanding the broader economic forces at play, including government policies and spending, can significantly influence our approach to retirement planning. If you’re intrigued by how macroeconomic factors might affect your financial strategy, delve into our comprehensive breakdown with Dr. Prasanna Tantri. This conversation complements our retirement planning discussions by highlighting the importance of being informed about the economic environment.

Does guarantee mean anything today?

I. The Significance of Guarantees

The importance of guarantees in financial planning cannot be overstated. Guarantees provide a safety net in an unpredictable financial landscape. In the context of retirement planning, government bonds and LIC (Life Insurance Corporation) annuities often come with guarantees that offer a sense of security. However, it is crucial to acknowledge the existence of risks, even when dealing with seemingly secure options.

II. Diversification for Robust Retirement Planning

One central point that emerges is the need to diversify retirement planning. Relying solely on the sovereign guarantee of an institution, even if it is considered “too big to fail,” may not be sufficient. Institutions like LIC, SBI, HDFC, and ICICI are indeed giants in the financial sector, but diversification across various investment options is essential for building a robust retirement plan.

III. Avoiding Impulsive Financial Decisions

The essay emphasizes the importance of avoiding impulsive financial decisions, especially when mixing insurance with investing at a young age. Careful planning and consideration are crucial, and making informed choices should be the cornerstone of one’s financial journey.

IV. Lifestyle Changes and Inflation

The recognition of lifestyle changes over time is vital. Tracking spending patterns and understanding how they evolve is essential for effective retirement planning. It’s essential to address the phenomenon of lifestyle inflation, where expenses tend to increase by 8-10% annually. Planning should focus on managing this lifestyle rather than just inflation-related expenses.

V. Realistic Expectations

Planning for retirement should be driven by realistic financial expectations. Aiming for high returns without a mature understanding of financial markets can lead to losses. This principle applies to both investing and trading, where a thoughtful and grounded approach is essential.

VI. Long-Term Perspective

Retirement planning is a lifelong learning process. Long-term investing differs significantly from day-to-day trading, necessitating continuous market education. The importance of setting long-term goals and consistently working towards them is highlighted.

VII. Be Cautious of Quick Wealth Promises

Quick wealth promises and passive income schemes should be viewed with skepticism. Responsible retirement planning requires a long-term perspective, spanning decades, and a commitment to securing one’s financial future rather than chasing short-term gains.

VIII. Addressing Inflation and Escalating Costs

Inflation, especially in countries like India, can significantly impact day-to-day expenses. Planning for retirement should consider these escalating costs, and individuals may need to invest more to ensure financial security.

IX. Balancing Current Spending

Balancing current spending is crucial to fund future retirement needs effectively. While financial advisors may sometimes be cautious about recommending higher investments, finding the right balance between present needs and future goals is essential.

Thus, effective retirement planning is not a one-size-fits-all endeavor. It requires a comprehensive and realistic approach that considers guarantees, diversification, lifestyle changes, realistic expectations, a long-term perspective, and prudent financial decisions. By following these principles, individuals can navigate the complexities of retirement planning and secure their financial future with confidence. Planning for retirement is a gradual process that demands patience, education, and a commitment to achieving long-term financial goals.

When exploring retirement planning strategies, it’s crucial to consider all aspects, including lesser-known rules that could affect our financial security. An example is the ROC 3 clause in the PF Pension Act, a hidden rule that might limit pension benefits after 20 years for some subscribers. This revelation underscores the importance of thoroughly reviewing pension plan details to ensure long-term stability. Awareness and proactive management of our pension schemes are key to avoiding unforeseen complications down the line.

Best and worst investments

Retirement planning is a complex endeavor that necessitates careful deliberation, patience, and a deep comprehension of one’s financial objectives and requirements. Dr. Pattabiraman champions a conservative and needs-based approach to investment. He underscores the importance of aligning investments with one’s financial necessities. Unlike some investors who may proudly proclaim a “best” investment, Dr. Pattabiraman adopts a more cautious stance. He refrains from showcasing a standout “best” investment and instead anchors his investment philosophy in practicality, ensuring that his investments effectively cater to his financial needs.

One particularly noteworthy piece of guidance Dr. Pattabiraman imparts is the recommendation to substitute active funds with index funds for retirement planning. This counsel originates from his belief in crafting a resilient retirement plan capable of seamlessly transitioning to a spouse or beneficiary in unforeseen circumstances. Pattu asserts that by avoiding reliance on fund managers, active funds, and financial advisors, individuals can safeguard the stability of their investments over the long term.

Pattu also underscores the importance of simplicity in retirement planning, regardless of fund ratings. While some may question his preference for active funds over passive ones, he remains unwavering in his choice due to the substantial growth of his portfolio. His steadfast position reflects his confidence in the appropriateness of his approach, especially considering the size of his investments.

A crucial piece of advice Pattu imparts to young investors is the avoidance of common retirement planning pitfalls. He issues a warning against fixating on recent performance and short-term gains, emphasizing the need for a long-term perspective. This caution extends to the peril of investing when funds have recently exhibited strong performance, as past successes do not guarantee future outcomes.

The concepts of the “hot hand fallacy” and the “law of averages,” elucidate how individuals may erroneously assume that past events will guarantee similar outcomes in the future. Pattu candidly acknowledges making these mistakes himself and expresses a desire for improved planning, championing the adoption of a more realistic approach to retirement planning.

Pattu’s insights underscore the paramount importance of aligning investments with financial necessities and maintaining a pragmatic and unwavering approach to retirement planning. Moreover, they underscore the need to eschew overconfidence in predicting future outcomes based solely on past experiences and decisions. Retirement planning is a journey that demands thoughtful reflection and an unwavering commitment to securing long-term financial stability. By embracing these principles, individuals can pave the way for a more secure and realistic retirement.

In diversifying retirement portfolios, government securities (G-Secs) emerge as a compelling option through the RBI Retail Direct Scheme, offering a straightforward pathway for individual investors to participate in G-Secs. However, when comparing returns and tax benefits, traditional schemes like EPF, PPF, and SSY still hold strong due to their tax-exempt status and higher interest rates. This comparison enlightens us on the significance of aligning our investment choices with our financial goals, risk tolerance, and the tax implications of each option.

Preferring less popular mutual funds

The paramount importance of simplicity and caution in choosing mutual funds. These insights resonate with the notion that a straightforward approach to investing can yield more favorable outcomes. Here, we explore these key lessons.

Pattu advocates for simplicity when it comes to selecting mutual funds for retirement portfolios. He cautions against overcomplicating one’s investment strategy with an excessive number of funds. Instead, he advises opting for a fund that isn’t excessively popular. To underscore this point, a comparison to Agent Smith’s quote from The Matrix is employed, emphasizing the need to eschew complexity in favor of a more streamlined investment approach.

One common behavior Pattu discusses is the tendency of mutual fund investors to flock to funds that are currently performing well. This influx of capital into a high-performing fund can pose challenges for fund managers in maintaining the fund’s performance and agility, as they may be restricted in making changes to the fund’s holdings.

The significance of considering the potential downsides of investing in popular mutual funds and the impact it can have on the fund’s management. It’s a reminder that following the crowd isn’t always the wisest strategy in retirement planning. It takes a historical turn, citing the example of Prashant Jain, who experienced a drop in portfolio performance in 2009 after the Congress government was re-elected. During this period, significant inflows were directed into his two funds, HDFC Equity and HDFC Top 200. This underscores the importance of comprehending market dynamics and political events when crafting retirement investments. He emphasizes the importance of avoiding popular fund managers and mutual funds in retirement planning. It draws attention to the fact that managing a larger portfolio can limit a manager’s ability to actively trade stocks, leading to a shift towards large-cap-oriented mutual funds. The primary takeaway here is to invest in less popular funds to maintain liquidity and avoid attracting undue attention.

The growth of the Parag Parikh Flexi cap fund since its launch as a New Fund Offering (NFO), despite initial expectations of a slow start. However, it also notes that some investors are expressing dissatisfaction with the fund’s performance, particularly in relation to investments in companies like Google and Facebook. This serves as an illustration of how investors often have high expectations and a short fuse when it comes to fund performance, highlighting the need for patience and a realistic outlook in retirement planning. The insights from Pattu’s discussion underscore the importance of simplicity, caution, and a long-term perspective in retirement investing. The wisdom shared serves as a valuable reminder that while it may be tempting to follow the crowd or invest in popular funds, a more thoughtful and considered approach can ultimately lead to more stable and successful retirement planning.

Do funds with high AUM generate low returns?

The concept of whether funds with high Assets Under Management (AUM) generate low returns is a subject of intrigue and debate in the world of investment. The discussion surrounding this notion explores the potential impact of a mutual fund’s size on its ability to generate returns over the long term. While Pattu acknowledges the significance of this concept, they express the difficulty in proving it definitively through empirical studies. Instead of offering specific retirement planning advice, he addresses concerns regarding the size of mutual funds and suggests alternative approaches to managing investments for retirement.

One key takeaway from this discussion is the importance of remaining open to adapting your investment strategy or enduring periods of under-performance in your retirement plan if you have confidence in your choices. This flexibility allows investors to navigate changing market conditions and align their investments with their long-term goals.

Another option highlighted in the text is adopting a passive investment strategy by becoming an index investor. This approach involves investing in index funds that track the overall market’s performance. Over time, index investing has been known to provide satisfactory returns. It offers a hands-off approach that aligns well with a retirement plan that seeks stability and consistent growth.

It offers advice against excessive stress about selecting the perfect investment option for retirement. It emphasizes that even average-performing funds can yield significant returns over the long term, especially if one assumes that the overall market will rise. This encourages investors to view their investment choices as acquaintances rather than lifelong commitments, recognizing that flexibility in investments may be necessary as financial goals evolve.

When examining fund performance, it is influenced by overall market trends. Therefore, if a fund’s value declines in sync with the entire market, it is considered a normal part of investing. However, if a fund consistently underperforms for reasons unrelated to market trends, it may be worth considering a change.

The two primary options presented in the text are as follows:

  • Active Investor Approach: Investors may choose to be active and regularly switch funds every few years in response to market fluctuations. This approach requires a proactive stance in managing investments to maximize returns and minimize losses.
  • Stable Investment Strategy: Alternatively, investors can opt for a more stable and long-term investment strategy. This involves selecting funds or assets that align with their financial goals and risk tolerance and holding onto them over an extended period, regardless of short-term market fluctuations.

In discussion around whether funds with high AUM generate low returns is intriguing and complex. This encourages investors to maintain flexibility, consider passive investment strategies, and avoid excessive stress over finding the perfect investment. Ultimately, the impact of AUM on returns may vary, and the key is to align investments with long-term goals and adapt as needed to navigate the ever-changing financial landscape.

How many funds should be included in a portfolio?

The valuable insights into retirement planning and the number of funds to include in a portfolio. It emphasizes a straightforward and focused approach to investing for retirement. Specifically, it recommends starting with one mutual fund, particularly one that tracks Sensex or Nifty with a low tracking error. This singular focus ensures simplicity and avoids the common mistake of overcomplicating one’s portfolio.

It suggests that individuals should prioritize increasing their income as a key goal for retirement planning. This can be achieved by continuously improving one’s skills and staying employable throughout their career. For some, entrepreneurship or pursuing a high-demand profession can also be effective retirement planning strategies. Late starters can catch up on retirement savings by earning a higher salary in the later stages of their career, reinforcing the importance of income generation.

Furthermore, the phenomenon of FOMO (Fear Of Missing Out) in retirement planning, cautions against chasing investment trends or making unnecessary trades influenced by friends’ choices. Instead, it encourages individuals to focus on stable options like the Nifty index and exercise control and maturity in their retirement planning. Based on the recommendations, it is advisable to start with one fund in your retirement portfolio. The emphasis should be on simplicity, income generation, and avoiding impulsive decisions driven by FOMO. As income increases and financial stability grows, individuals can consider adding more funds to their portfolios, but the key is to maintain a controlled and focused approach to retirement planning.

How do you manage your time?

  • Personal Health Challenges: Pattu, faced significant health challenges due to an autoimmune condition, which disrupted his ability to work and teach for nearly a year.
  • Learning About Finances: Despite health setbacks, Pattu used his time to learn about finances as a way to improve his state of mind and occupy his thoughts. He began working on financial calculators during his free time, including vacations.
  • Importance of Delegation: Delegation in retirement planning. 
  • Transition in Career: Pattu discusses his career journey, mentioning transitions from one area of physics to something different and contemplating a move beyond finance. He expresses uncertainty about the future direction.
  • Desire for New Challenges: The importance of seeking new challenges and avoiding repetitive actions when planning for retirement. He mentions being at the completion stage of his current phase in life.
  • Deepening Knowledge: Focusing on gaining a deeper understanding of market risks, the connection to chaos, and fractals. 

These insights into Pattu’s personal journey in retirement planning, the importance of delegation, and the pursuit of new challenges in various fields beyond finance.

Do IITM Students make the same mistakes as other people?

It is a misconception that IIT students are inherently smart, attributing their success to the dedication and early commitment they make to their studies. It emphasizes the idea that their knowledge accumulation over time creates the illusion of intelligence, similar to what others achieve through dedication. success is often a result of hard work and persistence rather than innate intelligence. Young people today are more interested in investing differently from their parents, but some are still influenced by their parents’ investment strategies. Despite differences in expertise and investment approaches, everyone is fallible and makes mistakes. More people are looking to plan their retirement independently and are actively seeking content to help them do so. Recognition through improved search algorithms. Pattu from FreeFInCal initially struggled to gain recognition for their content. However, advancements in Google’s machine learning algorithms have made it easier for people to find relevant information without relying on traditional SEO techniques. The speaker mentions that they have been able to cater to younger individuals who are searching for retirement planning information, indicating a growing interest in financial preparedness among the youth.

The impact of status-driven weddings

The impact of status-driven weddings on retirement planning is significant and concerning. Many individuals succumb to societal pressures and extravagant wedding trends, often spending beyond their means to compete with others and elevate their social status. This excessive spending and the accumulation of debt for non-essential expenses like weddings can hinder one’s ability to plan effectively for retirement.

To achieve a secure retirement, it is crucial to prioritize responsible financial choices and avoid going into debt for weddings. Managing spending, being prepared to make sacrifices, and borrowing cautiously are essential aspects of retirement planning. Overspending on weddings can delay family planning and impact other life events due to the burden of debt repayment.

In essence, status-driven weddings can lead to financial challenges that affect retirement goals. It underscores the importance of making prudent financial decisions and considering the long-term impact of major expenses on retirement planning.

Advice for listeners

Overthinking retirement planning without taking any action can indeed be counterproductive and paralyzing. It’s essential to recognize that negative thoughts or concerns about retirement should serve as motivation to proactively address them and make necessary arrangements to mitigate risks.

The key takeaway is that everyone should take proactive steps in planning for retirement rather than getting caught in a cycle of overthinking without taking concrete actions. Retirement planning is a crucial aspect of financial well-being, and while it’s essential to think through it, it’s equally important to put those thoughts into action.

Furthermore, the text emphasizes the importance of respecting individual experiences and advises against giving unsolicited advice. It draws a parallel between personal life lessons and the variability in Systematic Investment Plan (SIP) returns based on different start dates, highlighting the uniqueness of each person’s financial journey.

Advice for tough times

Ensure you have enough fixed-income assets to provide inflation-protected income for the first 15 years of retirement. This strategy helps navigate through periods of negative market returns and sideways markets during the initial phase of retirement. Additionally, consider diversifying your retirement planning approach, including mutual funds and debt mutual funds, and allocate around 20 to 30 percent to equity capital to combat inflation while exercising caution not to exceed a 30 percent allocation to equity capital.

Why do people put all their eggs in one basket?

The discussion highlights the evolving landscape of retirement planning, emphasizing the need to adapt to new approaches for securing a comfortable retirement. While older generations often relied on traditional methods like fixed job security or real estate investments, today’s retirees are exploring options like mutual funds, particularly equity funds. However, the key challenge lies in receiving quality advice, as poor investment choices in mutual funds can hinder retirement plans.

To make better retirement plans, individuals are encouraged to conduct research or seek guidance from SEBI-registered investment advisors, even if it involves fees for expert advice. Diversification and careful portfolio management are vital considerations, especially when equity investments are part of the plan.

Pattu is mentioned as a fee-only advisor without conflicts of interest, highlighting the importance of unbiased financial guidance in retirement planning. It underscores the increasing significance of retirement planning as more assets shift to mutual funds after retirement, and it acknowledges the potential challenges posed by market shocks or negative returns.


In navigating the complex terrain of retirement planning, it’s imperative to adopt a pragmatic and forward-thinking approach that prioritizes simplicity, income generation, and resilience against market volatility. The insights gleaned from Pattu’s journey underscore the importance of adapting to life’s challenges, continuously learning, and seeking new growth opportunities. By starting with a focused portfolio, individuals can lay a solid foundation for their retirement while avoiding the pitfalls of overcomplication and impulsive decision-making driven by societal pressures or fear of missing out.

Delegation emerges as a valuable tool, emphasizing the importance of seeking expert advice and delegating tasks to those with the requisite knowledge and expertise. Moreover, the impact of status-driven expenses, such as extravagant weddings, serves as a cautionary tale against sacrificing long-term financial security for short-term social validation.

Advice for listeners resonates with a call to action, encouraging proactive steps in retirement planning while respecting the uniqueness of each individual’s journey. Furthermore, prudent strategies for tough times, such as diversification and fixed-income assets, offer a roadmap for navigating through market uncertainties and downturns.

Ultimately, the evolution of retirement planning demands adaptability and a willingness to embrace new methodologies, guided by quality advice and informed decision-making. As individuals embark on their retirement journey, may they find solace in the wisdom shared here, ensuring a secure and fulfilling future ahead.

Catch the full podcast with Dr. Pattabiraman in the video below:

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