Thursday 29 October 2009

World Thrift Day - Why ALL of us Ought to invest in Equity

World Thrift Day - Why ALL of us Ought to invest in Equity

Dear Friends,

Wishing you all a very happy "WORLD THRIFT DAY" - Apparently, it is celebrated on October 30th!

To me, every day is a Thrift Day.

On this occasion, I'd like to make a preposterous suggestion: All of us MUST invest in Equity (either directly or through mutual funds - at least through Nifty BEES). Many may be aghast at this suggestion, saying that Equity is not appropriate for anyone who can't afford to take a risk.

However, I differ.

Take a look at the following table:

 Reason as to why you must remain exposed to Equity!
Initial Amount Invested
Annual Return
No. of Years
Final Value of Investment
         
Even if the initial investment is half, if annual returns are much better, the final value will be much bigger over a long period of time. Moral of the story: Invest at least part of the amount in Equity to ensure higher returns over a period of time.
50,000 1.14 10 185,361
100,000 1.08 10 215,892
       
50,000 1.14 15 356,897
100,000 1.08 15 317,217
       
50,000 1.14 20 687,174
100,000 1.08 20 466,096

You'll notice that:

  • I've just assumed a one-time investment and have done the calculations for two different sums of initial investments - 50K & 100K.
  • Obviously, I've assumed that the guy investing 50K chooses to invest in Equity while the guy investing 100K has chosen debt instruments like fixed deposits
  • I've assumed a relatively ordinary level of 14% per annum returns for Equity, whereas many mutual funds have given far superior returns.
  • I've assumed truly long-term time horizons.

You'll further notice that beyond 15 years, the guy who initially invested just half the sum initially actually outperforms the other guy.

That's the power of a combination of:

  • Long time horizon,
  • Compounding and
  • Equity investing

If the above results are achieved with just a one-time investment, just imagine what you can achieve with a recurring investment in Equity with a good chunk of your disposable surplus savings!

Happy investing. May all of you grow immensely rich and wealthy beyond your wildest dreams!

Regards,

N


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