Let’s talk onions – 3 – The withdrawal process

There were two previous articles in this series. If you have not read those, this will not make sense to you. They can be read by clicking on the following links:

Let’s talk onions – Part 1

Let’s talk onions – Part 2

So, till date you’ve been investing Rs.1000 every month religiously for say, 7 years. Now, it is the time to make a decision on the way forward.

Should you continue the investment? Should you start selling little by little? What are the consequences if the price of onions suddenly drop in the tenth year?

The answers to these questions are difficult. There are no perfect answers, but the main stress should be on minimizing risk – we should have the money when we need it.

You have totally invested 84,000 over the last 7 years – 1000 x 12 x 7. Now, at the present price of onions, say this is worth Rs.1,26,000 – the returns are nearly 11% annualized and compounded. I would consider those returns as quite good.

So, if you sell off all the onions right now, you will get 1,26,000. Also, the initial plan was to invest for 10 years. So, there will be an investment amount of 3 x 12 x 1000 = 36,000 in the next three years. So, if you sell off and keep Rs.1000 aside every month, the total after three years will be approximately 1,26,000 + 36,000 = 1,62,000, not counting the interest that you would earn on the sale amount

Case 1 – You are saving up for retirement which is say 10 – 15 years away.
In this instance, you should just continue with the investment, even beyond the ten year investment plan, with a review every year. In fact, after retirement, you may not be able to continue investing every month, but the amount invested should remain there.

Since, the money will be needed after a long period of time, even if the prices fall in between, it is not a problem, there is enough time to recover.

Case 2 – You need the money for sure at the end of the 10 year investment period, say, for your daughter’s education.

In this case, you cannot take a chance of being short of the required total due to the onion prices falling. You have to withdraw all the money and put it in safe fixed deposits. This way, you know exactly how much you will have at the end of 3 years and you can base your planning on this amount.

I have decided to add one more part to this ‘Onions’ series.

Till next time.

Niranjan Bangera