Groww Digest

6 Day Course

Theme: salary from investing

Dec 25 to Dec 31 2023

6 Day Course is a part of our newsletter

series, Groww Digest - all things personal
finance.

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Day 1: Monday
6 Day Course | Theme: salary from investing

Many people dream of quitting their regular

jobs/business to pursue a different life/retire
early.

In such cases, they want to earn an

income/salary from their investments.

In this course, we’ll discuss how to plan for

that.

Let’s understand a few things first.

Rate of return: this is the return your

investment is earning.

Rate of withdrawal: this is the rate at which

you withdraw money.

Inflation: this is the rate at which things

become expensive every year.

You need to consider all of these while

retirement planning.

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Day 2: Tuesday
6 Day Course | Theme: salary from investing

Continuing from yesterday.

Once you have an investment amount ready, you

need to decide how you want to earn from it.

You can withdraw such that the money lasts

forever.

Or, you can withdraw such that the money gets

finished in your lifetime.

Example:

Let’s say the inflation is 5% per annum. And the

investment gives you 10% per annum.

If you withdraw a high enough amount (say 8%),

eventually, all the money will get used up.

If you withdraw a very low amount (say 2%), you

will practically never run out of money, ever.

Both approaches are correct. It is an individual

choice.

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Day 3: Wednesday
6 Day Course | Theme: salary from investing

Uneven inflation.

While doing calculations, you will need to factor

in inflation.

The practice is to take inflation between 4% and

8%.

The reality is, different items have different

inflation rates.

Milk and petrol might be get costlier at 3%

inflation but medical expenses might have an
inflation rate of 12% (these are examples, not
real inflation numbers).

Similarly, inflation in education is much higher

than the average inflation.

If a person has to send children to college, much

higher inflation should be considered.

If a person has healthcare and medical bills,

much higher inflation should be taken as well.

Page: 4
Day 4: Thursday
6 Day Course | Theme: salary from investing

Rate of withdrawal: this is what determines how much

you get per month.

It also determines how your invested money

finishes/grows with time.

Let’s take an example.

Say your investment is growing at a rate of 12% per

annum.

Inflation is 5%. So your real returns are (12-5) = 7%.

Now, if every year you take out 7%, you will keep
getting the same returns year after year.

But that can be tricky. If inflation goes up, the same

return will not be enough.

If you take out less than 7% per annum, your main

investment amount will always keep growing.

Many senior citizens take out more than the returns

they get — they are also reducing their total
investment amount.

There is nothing wrong in that — they want to use up

all their money in their life.

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Day 5: Friday
6 Day Course | Theme: salary from investing

A challenge in earning a salary from investments is that

every year is different.

In calculations with rate of return, rate of withdrawal, and

inflation, we have assumed the numbers will remain the
same every year.

But in reality, that is never the case.

The inflation can be higher than normal in some years.

The rate of return of your investments can be low or

negative in some years.

How will you withdraw in years like that?

It can get particularly messy if the inflation is high and

return is low at the same time.

This is why every planner must include a buffer

investment — this is the investment you keep aside for
years when such things happen.

This is just the start of financial planning.

Think and plan carefully about all aspects of finance and

your life when making plans to earn from only your
investments.

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Day 6: Sunday
6 Day Course | Theme: salary from investing

We’ve reached the end of this week’s course

that started on Monday.

Here’s a test you should take. Get pen and

paper!

Question 1:
Is it possible to invest in a manner such that a
person never runs out of money?

-Yes
-No

Question 2:
When calculating, what inflation rate is usually
taken?

-1 to 2%
-4 to 8%
-10 to 20%

Page: 7
Day 6: Sunday
6 Day Course | Theme: salary from investing

Question 3:
Inflation is the same for all expenses (food,
education cost, medical cost, etc).

-True
-False

Question 4:
A person’s investment gives a return of 15% in
one year. Inflation that year is 8%. What is the
real return of this investment?

-7%
-15%
-23%

Question 5:
Returns and inflation are the same every year.

-True
-False

Page: 8
Day 6: Sunday
6 Day Course | Theme: salary from investing

Answers:

Q1: Yes
Q2: 4 to 8%
Q3: False
Q4: 7%
Q5: False

Page: 9
 That’s it for this week!

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See you next week!

—Groww Digest Team

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