Expense Account, Mint
he last fortnight has been good for our money. Europe looks as if it will survive a while longer. The US bit the bullet and gave an annuity to the people printing dollars. Closer home, the purge in North Block was completed and most people cheered as baby steps of reforms got taken. Markets are up in response though the scepticism about the political spine to push through these baby steps remains. While the macro events played out, the tiny community of financial planners in India exhaled. It’s been difficult to keep the faith in equity going and the systematic investment plans (SIPs) funded specially over the last one year. The point to point five-year equity return looked terrible, especially in comparison with fixed deposits and gold. But those who remained invested, had a good portfolio of funds and continued their SIPs would have seen a change from red to black in their account statements. A point-to-point comparison for a period less than 10 years is a poor measure of equity return, a better indicator is to look at SIP returns. Try any SIP calculator (there is a good one on http://www.valueresearchonline.com) and put in different dates and times to see how little difference the choice of an SIP initiation date makes. Also true is that a chunk of the pull-back happens in the early days of a reversal of a bear phase, but retail investors like us tend to lose faith as the downturn is bottoming out and exit. By the time we get back in, the multiplier that can really boost returns is over. One of the toughest tasks for a financial planner is to manage the expectations of clients, both in boom and doom times. One argument that I find powerful (and use to stay invested myself) is this: We know that over the long term, equities will outperform most other asset classes. This is especially true of growth economies and India has 30 years of growth ahead, but the biggest threat to us is our own politics. If growth unravels, we’re looking at huge social unrest—the demographic dividend will turn into a bomb. There are then two scenarios—doom or boom. The luxury of a stable 5% growth does not exist for India—we’ll unravel if the economic ambitions of the bulge of population pouring into the workforce are not addressed. The investment choices in such a scenario are only two: go full into gold if you think we’ll implode (not even land, gold you can carry out of the country) or remain invested in a basket of products and believe that the politics will come around. I stay with the SIPs. Happy to report that after a long period of red on the account statement, this week begins well. The green shoots of black are back.