Why My Friends Lost or Earned Only Meger Returns from Investments in Both Stocks and Mutual Funds?

Dear Friend!

You have raised a very pertinent question that has the potential of addressing a similar doubt in the minds of many. Thank you.

I really do not know the background facts, still the a few reasons for poor results is quite evident and they can be listed as follows:

1. Investment Timeframe: For what time were had they remained invested? Share markets can remain depressed for a few years at a stretch and for the last few years they have not progressed very much. What do you think is the right timeframe for meaningful long term wealth creation? It is a bare minimum 20 years and ideally 40 to 50 years. Why such a lengthy spell? Only over such long periods, the ‘Miracle of Compounding’ discovered and propounded by Albert Einstein will get an opportunity to work for the investor.
2. What is the Actual definition of Returns: Most of have been conditioned to believe, in the context of investments at least, that return means increase in the market price of the investment. Of course capital appreciation is a vital ingredient ofreturns but it is in addition to regular and recurring returns: dividends, special dividends and bonus shares. Over 40–50 year interval if you aggregate the regular returns with the capital appreciation at the end, we will be pleasantly shocked at where we stand.
3. The quality and purchase price of stocks: Stocks, I am not talking about mutual funds here, need to be purchased of good companies at a ‘Fair Price’. If one buys a stock that has an intrinsic value of Rs.100 is bought at Rs.200, what upside can we expect from the investment, that too over a short period of time?

Friend, ‘Value Investing’ is a time tested and sure path to long term wealth creation. There is no room for doubt or argument about it. Please buy a copy of ‘The Intelligent Investor’ by Benjamin Graham, TODAY, your life will change!

Thank you,

With Best Regards

Anand

How Do I Invest ₹80,000 to Maximise My Returns?

Only stocks can give significant gains over a very long period of time. Fixed income instruments do not yield real returns in India, in the present market conditions where interest rates are low and inflation presently is around five percent but could go up to 10 percent or even more.

Many people mistakenly believe that stock markets are highly risky. yes they are risky for speculators and people who enter without any basic preparation. Actually risk comes from not knowing what we are doing and the so-called safe investment options can turnout to be not only risky but quite unproductive also.

You have two options before you, as follows:

1. You may learn ‘Value Investing’, in which case please buy the best book, ‘The Intelligent Investor’ by Benjamin Graham and get started immediately. You may visit my blog atValue Investing.

2. If you do not want to spend a lot of time on investing, you may simply invest your corpus in an ‘Exchange Traded Fund (ETF)’ that mirrors a popular index like DAX, Dow Jones, etcetera or any good mutual fund.

Now the most important aspect of investing begins. You simply forget about the investment till 20 years.

Following table shows what your investment could be if it is able to generate a compounded annual growth rate (CAGR) of 15% per annum or 1.25% per month, which is very much possible.

I have assumed an annual inflation rate of 9.96%, which is probable in India, where I live, but in the US it is very unlikely. So, if the inflation rate is 2% per annum, you will end up with a net future value of US$ 911,208, quite a significant sum.

Note: This is a reproduction of the question I had answered on the website ‘Quora’.

Which One is Better: Recurring Deposit in Bank or SIP in Mutual Funds?

Savings and Investment are two separate concepts. Savings are generally short term in nature and may be intended for a specific purpose like education of child, marriage of a girl child, including savings for investment. Investment on the other hand is long term in nature, say for 20 to 30 years and should not be broken or sold or withdrawn before that period.

A recurring deposit (RD) with a bank for savings purpose is alright. If one is talking about investing and multiplying the sum many times then systematic investment plan (SIP) is the only answer and there is no comparison with RD.

Even though you have not touched this aspect, I have repeatedly mention every time, everywhere that starting a SIP and discontinuing it after a short time, citing reasons of market conditions, is quite useless. A SIP can yield benefits only if it is kept alive irrespective of any reasons for 20 to thirty or even 50 years. During that long, long period the ‘Miracle of Compounding’, propounded by Albert Einstein, will work in favour of the investor. Also the companies constituting the mutual fund grow naturally in size and profits, again benefiting the investor.

Believe me, following the simple principle described herein can not only multiply the investment many times but make the investor really Rich.

If you want to learn ‘Value Investing’ for FREE, please visit ‘Wealth Vidya’.

Anand

Note: This is a reproduction of the question I had answered on the website ‘Quora’.