A guy I know wanted to retire when he was 25. He just didn’t have the money. If I get Rs1 crore, he said, then I’ll retire. Now, 30 years later, he’s still working and still not done with gathering the corpus he needs to retire. Anyway, he’s wiser and agrees that financial security and going to work need not be either/or. People can continue to work even if they are financially secure. But how much do we really need to save out of our incomes to know that we will hit retirement with enough to maintain our lifestyle for another 30 years? Every time I speak to a friend about buying a life cover, he tells me—the risk we have is not of dying too soon, but of living too long.
The sudden shock of the currency ban and an unexpected election result in the US caused markets to open 6% down on 9 November. But a day later, the story has changed—all markets are up. So why are stock markets surging? Why are bond markets happy? Why are real estate magnates walking like zombies? What lies ahead for your money?
Readers of this column are hopefully smug with their financial plans and asset allocation in place and are not wasting time wondering if stocks are a good ‘bet’. But let’s deconstruct why markets are up on Day 2 of the #currencyban. Day 0 was 8 November, when Prime Minister Modi made his #currencyban address to the nation.
It always amazes me. The confidence with which people make such definitive statements. Gold is always the best investment. You can’t lose on real estate. Stocks are a gamble. People like me, who take a middle-of-the-road approach and talk of diversification, were hooted down when gold was the best performing asset class two years ago or when people swapped their multi-bagger real estate stories. To talk of investing in equity in the go-go years of gold and real estate, when equity was down, was to invite derision and disbelief. But now that gold is down, real estate is in decline (held up only by a frozen market), fixed deposit (FD) rates are down and equity is moving sideways, it is a good time for some non-exuberant talk. If the chatter on WhatsApp groups (when they tire of recycling the same pathetic jokes) is any indication, people are willing to listen to sense. One forward that has come on almost all of my WhatsApp groups is the one titled “Real estate: the fall has just begun”. I traced the forward to a blog by certified financial planner D. Muthukrishnan of Wise Wealth Advisors, http://mintne.ws/1MhqzZZ . Very sensible stuff; do read. And remember to build in the tax impact on the final average return numbers given in the blog of the FD average being inflation plus 1%, gold giving inflation plus 1.5%, real estate inflation plus 3% and equity, inflation plus 7%.
The markets are currently taking a breather but as we pull out of the economic downturn, they will get a fresh burst of energy. The ups and downs of the market in the past three months seem to unnerving investors who are seeking equity exposure to their money. All investors in equity need to remember that markets in the short term are capricious, but reflect the earnings of the corporate sector in the long run. The BSE benchmark equity index, the S&P BSE Sensex, has returned an average of 17% a year since its inception 36 years ago. If you had invested Rs.1 lakh 36 years ago in the Sensex, it would be worth Rs.2.8 crore today. Investors just have to get it out of their head that the stock market is a place to double money overnight. It is a place to double money, but not overnight. It is a slow cook that makes money stay ahead of inflation at best. Here are four things to not do when the markets are falling or rising.