Student and Early Earner Model Portfolio Methodology – Nov 2024Introduction
Our brain is habituated to think in a linear fashion, so if I am asked to estimate how much my 5000 rupees are going to grow in 40 years at a 15% expected return annually, I will think something along the lines of 5000 X 40 times = ₹ 2 Lacs. But the actual number will be closer to the figure of ₹ 19.5 Lakhs. This shows we tend to underestimate the power of compounding.
Imagine if a 20-year young investor starts keeping aside a small sum of INR 5000 every month and starts building his/her stock portfolio for the next 40 years. Assuming an expected return of 15% annually with this discipline of investing ₹ 5000 per month for the next 40 years, just imagine how much the portfolio is expected to grow. It is going to be an enormous number of ₹ 15.7 Crores and can retire peacefully. This is exponential growth, and the best part is more is the number of years more prominent the impact is on the growth of the invested amount. The key here is to stay invested and maintain the discipline of investing every month without bothering about the highs and lows of the market. Stock markets are destined to have cycles of up and down, but it is an investor’s hand to decide how they react during these cycles.
The “Oracle of Omaha” and one of the most prominent investors of today’s world Mr Warren Buffet has mentioned multiple times that his life has been a product of compound interest.
So here we are with a model portfolio that can aid an investor’s investment process by starting early and starting with a small amount of ₹ 10,000 per month. With Yadnya’s Student and Early Earner Model portfolio, what we are offering is a small denomination model portfolio using which an investor can start building his/her stock portfolio at an early age and fully utilise the magic of compounding through a long-term approach. This concentrated model portfolio is built using Yadnya’s FIVE-G framework.
Students get small amounts in the form of pocket money or through part-time income like teaching other students. This model portfolio allows such students to participate in capital markets and take benefit of the edge they have on their side – TIME for long-term capital growth. As they say, many millionaires started early on with their pocket money.
While starting our careers with our first jobs, typically the expenses are high, and the savings are low. Using this model portfolio early earners can also start paving their path to financial freedom with low savings rates. Early earners can take up more risk with their investments as typically the responsibilities are low, and the investment horizon is very high.
The minimum investable amount for this portfolio will remain less than ₹ 10,000 such that students and early earners who typically have small investable amounts at their disposal can make full use of this model portfolio. The portfolio comprises 11 stocks currently, with multi-sectoral exposure providing the benefit of both diversification and concentration.
Stock Selection Approach
For portfolio construction, this Model Portfolio follow Yadnya’s FIVE-G framework for bottom-up analysis of stocks. The framework of Financials, Industry Analysis, Valuation, Enterprise (Business Model), and Governance helps analyse stocks and the stock selection process within each sector’s tactical allocation.
We consider many fundamental, technical, and industry parameters for coming up with individual scores of all the companies in the screened universe of stocks. Some of these parameters are mentioned here:
Investment objectiveThe aim is to generate long-term returns by investing in a concentrated portfolio of Indian companies with high growth potential by taking higher risks.
StrategyBuy and Hold investments with a time horizon of 10 years in stocks with strong fundamental characteristics and sound management.
Methodology
The sector-wise breakup of the portfolio
Risk mitigation strategy We actively consider risk parameters like Beta and Standard Deviation in our analysis. Incorporating lower Beta and low standard deviation stocks helps in constructing portfolios with lower downside risk. Thus, if the benchmark stocks take a steep fall, the constructed model portfolio falls at a lesser pace and quantum. One of the criteria for selecting stocks is that after constructing the portfolio, the Beta and Standard Deviation of the constructed portfolio is less than the Beta and Standard Deviation of the benchmark.
Is this model portfolio for you?This portfolio is meant for students and early earners with high-risk profiles i.e., investors who are willing to accept periods of high market volatility in exchange for the possibility of receiving returns that outpace benchmark indices. It is important to have a long-term horizon for aggressive investors investing in direct stocks because if there is a severe downturn in the market, an investor will need plenty of time to make up for the decline in value.
The expected average rate of return from a portfolio is 15-18% over time. In its best year, it might gain 25-30% and in its worst year, it could decline by 20-25%.
These are typical investor profiles who can refer to this portfolio:
- A student with a high-risk appetite; typically, an 18 to 25-year-old with low savings and low liabilities.
- A young professional who just started working and is interested in creating a new stock portfolio.
- A homemaker who wants to utilise a portion of the monthly savings to take first exposure to stock markets for meeting a long-term goal.
Time Horizon – Min. 10 yearsRebalancing – Quarterly Benchmark – BSE 500 Index Important Dates:
Inception Date – August 25th, 2021
Launch Date – August 25th, 2021
Market Cap Category – Multi Cap
Last Quarterly Rebalancing – November 30th, 2024
Next Quarterly Rebalancing – March 1st, 2025
Portfolio Performance as of 01st December 2024:
This chart shows the portfolio’s cumulative performance since inception until the latest month-end. The Student and Early Earmer Model Portfolio is compared against the S&P BSE500 TRI Index’s cumulative returns.
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