Can a low CAGR still sustain a retirement portfolio?

Yes, a 8% CAGR can sustain a retirement portfolio if supplemented with a consistent SIP. The article shows that with INR 1.5 lakh monthly SIP, an 8% return avoids depletion by age 73. Without SIP, 8% CAGR leads to corpus depletion by 73. This demonstrates SIPs create room for error even with lower returns.

Why is behavioral bias costly for investors?

Behavioral bias costs investors by causing them to sell during market drawdowns, locking in lower returns. The article highlights that panic selling during two major drawdowns reduced realized returns from 17.7% to 8.8%. Staying invested through declines, even with short-term losses, preserves compounding power.

How do SIPs help in retirement planning?

SIPs help by ensuring consistent investments regardless of market conditions. The article explains that SIPs create a buffer for years with lower returns, like 8% CAGR, and allow investors to survive drawdowns. They also prevent panic selling, which is critical for long-term compounding.

Does Your Retirement Portfolio Have Room for Error?

Consider a 37-year-old investor with INR 2 Cr, spending INR 24 lakh annually, planning to retire at 60. Left to compound without any additional influx of funds, the longevity of the corpus - and, therefore, the investment plan - depends entirely on the returns.

Scenario

Corpus @ 60

Corpus @ 85

Status

12% CAGR

27.1 Cr

35.7 Cr

✓ Sustains

10% CAGR

17.9 Cr

0 Cr

Depletes @ 85

8% CAGR

11.7 Cr

0 Cr

Depletes @ 73

8% + INR 1.5 lakh SIP

23.17 Cr

2.8 Cr

✓ Sustains

Note: Expenses inflate at 6% annually. All amounts in INR.

At 12% returns, the plan holds. At 8% without adjustment, the corpus depletes by age 73. But a consistent monthly SIP of INR 1.5 lakh makes even 8% returns survivable.

This is room for error. And every investor needs it. Read on to know why.

What Does Realistic Growth Look Like?

An 8% growth is considered overly pessimistic for Indian equities. However, evidence suggests otherwise.

Rolling 10-Year CAGRs

Period

Nifty 50 TRI

Nifty 500 TRI

2006–2016

12.2%

11.9%

2007–2017

8.7%

2008–2018

6.6%

2009–2019

14.9%

15.9%

2010–2020

10.3%

9.8%

2011–2021

9.9%

10.1%

2012–2022

15.7%

16.8%

2013–2023

13.2%

13.8%

2014–2024

14.6%

16%

2015–2025

12.5%

14%

The decade ending 2018 delivered just 6.6% CAGR. Nearly one in five 5-year periods delivered single digit returns. This makes planning for a lower growth-rate not pessimism but prudent base-case thinking.

However, the last decade of single-digit growth ended in 2021. Since then, every completed 10-year period has delivered 12%+ returns. And conservative assumptions are easiest to dismiss after a strong run. They prove their worth only when the cycle turns.

The Returns You Earn Vs. The Returns You Keep

Each time a portfolio underperforms, the temptation is to react, to switch strategies, to reduce equity exposure, to chase what has been working. Study after study shows that investor returns significantly lag fund returns. The reason is behavioural - investors buy high and sell low. They chase performance into overvalued markets and panic out at the bottom.

But more often than not, that has turned out to be a costly mistake.

A portfolio that compounds at 8% and keeps you invested beats the 15% portfolio you abandon during a drawdown. The numbers prove it.

The Behavioural Cost of 17.7% Returns

CMW Adaptive Momentum has delivered 17.7% CAGR since inception. (Disclaimer: Performance data is not verified by SEBI.)

Impressive.

But to actually earn that 17.7%, you had to stay invested through three significant drawdowns:

Drawdown Period

Decline

COVID Crash (Mar 2020)

-15%

2021–22 Correction

-22%

Current (Sep 2024–Present)

-24%

The strategy has spent 37% of its life in drawdowns exceeding 10%. Nearly one in four days, it has been down more than 15% from peak. This is the price of the 17.7% CAGR.

Now consider what happens if you could not stay invested.

What Panic Actually Costs You

Scenario

CAGR Realized

Stayed invested through all drawdowns

17.7%

Panicked during COVID, re-entered 6 months later

11.7% (-6.0%)

Panicked in 2022, re-entered 6 months later

14.7% (-3.1%)

Panicked twice (COVID + 2022)

8.8% (-8.9%)

Read that last row carefully. The strategy delivered 17.7% CAGR. But an investor who panicked twice - selling during COVID and again in 2022, re-entering six months later each time - realized only 8.8% CAGR. The behavioural gap is 8.9%.

This is not hypothetical. These are real drawdowns. The temptation to exit was real. Many investors did exit.

The Retirement Planning Illusion

Now consider what this means for retirement planning.

If you plan your retirement assuming Momentum’s 17.7% CAGR, you might conclude that you need a smaller corpus or lower SIPs. After all, 17.7% compounding is powerful.

But to actually achieve 17.7%, you need to:

Hold through a -15% crash in March 2020
Hold through a -22% correction in 2021–22
Hold through a -22% drawdown right now (ongoing)
Continue holding through whatever comes next

If you panic even once, your realized return drops to 11–15%. If you panic twice, you get 8.8%. So, if chasing returns is a trap, what is the alternative? The answer lies in building resilience.

What Does Room for Error Mean in Practice?

It means not betting everything on that one asset or strategy delivering 17% returns. Yes, concentrated portfolios can deliver extraordinary returns, but only if you stay invested through their extraordinary drawdowns.

It means caring about the growth-preservation mix in your portfolio. Growth assets compound wealth over decades. Preservation assets protect your ability to stay invested when growth assets decline. The right mix is not the one that maximizes returns - it is the one that matches your ability to endure volatility without wanting to bail out.

It means designing for the years that do not go well. Every portfolio will have bad years. The question is whether your allocation allows you to stay the course during those years or whether it triggers the panic that destroys compounding.

And when years do go well, it means using those gains judiciously: rebalancing to lock in profits, replenishing your preservation assets, and preparing your portfolio for the next inevitable correction. Good years are not for celebration. They are for building the buffer that lets you survive the next bad year.

And the best way to build that buffer is SIPs.

What Consistent SIPs Buy You

It is almost impossible to reliably identify good times in advance. By the time you know markets delivered 12%, the year is over.

If markets deliver 8%, the SIP is necessary; it is what makes your plan work.
If markets deliver 12%, the SIP creates a buffer or a room for error in years that give 8%.
Since you do not know what you will end up with, consistent SIP is the only prudent approach.

Invest the SIP consistently. If markets disappoint, you will need it. If markets deliver, you will have built a buffer. Either way, you win.

Planning at 17.7% with lower SIPs is betting on perfect behavior through multiple 20%+ drawdowns. Planning at 8% with consistent SIPs is accepting human nature and building a plan that survives it.

Addressing the Current Sentiment

Over the past 15 months, our strategies have underperformed the benchmark by a significant margin. CMW Adaptive Momentum is down 22% from its July 2024 peak. CMW Surge India has declined nearly 10% from its highs. We understand the accompanying anxiety.

At the same time, our composite strategy has delivered 17.4% CAGR since March 2019, ahead of both Nifty 50 TRI (+14.8%) and Nifty 500 TRI (+16.2%). The recent underperformance is real, but it exists within a longer track record that remains strong.

The question is not “Will markets recover?” Markets have always recovered. The question is: “Does my plan have room for error?” Do you have a plan that’s robust enough and allows you to build when the times are good and stay and hold when times aren’t?

The Path Forward

Stress-test your own goal plan:

Does your retirement plan survive if returns average 8% instead of 12%?
If not, what consistent SIP would create that margin of safety?
Are you building buffers systematically, or leaving your plan exposed?

Shift your focus from “what returns will I get?” to “is my lifestyle unbreakable?” The first question creates anxiety. The second creates clarity.