Why five years of spending should stay safe
Shares grow money over decades, but they fall hard every few years. The families who lose most are the ones who have to sell during the fall.
What 2008 did
The Nifty 50 closed at 6,288 on 8 January 2008. By 27 October it had fallen to 2,524, a fall of 60%. It took until November 2010, nearly three years, to close above its old high again.
A family that held on lost nothing in the end. A family that needed money for a fee, a house or a year of living expenses had to sell shares at less than half their price, and those rupees never came back.
Five years is the cover
So we keep five years of the family’s spending in debt and cash, where a crash can’t reach it. Five years covers a fall like 2008’s and the recovery after it, with room to spare.
The rest can stay invested for growth, because nothing will force you to sell it in a bad year.
What it costs
Debt earns less than equity over long periods, so this money grows more slowly. That is the price of never selling at the bottom, and for most families it is a small one.
When it changes
Until five years before you retire, five years of spending is the most we keep safe for retirement. From then on it is also the least, whatever your appetite for ups and downs, because the spending is about to start.
Index figures: Nifty 50 closing values, NSE. Indicative only, not investment advice.
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