The Financial Pyramid - Part 2

In the part 1 of this topic (Financial Pyramid), we discussed the need to have a portion of our investments in safer investment instruments. But as we observed in the said article – keeping all your investment in safe, risk free investment avenues will be a big mistake.

Therefore, once you have taken care of the ‘protection’ of investments, you will have become a little daring and evaluate alternatives which provide better than risk-free returns. While assets like Gold and property are considered as investments, usually they will not qualify as assets merely for purpose of financial planning. These investments have issues relating to liquidity and sentimental values.

So now one is left with ‘Equities’ as a high return yielding investment. But then again, most people get nervous when we talk about Equities – and rightly so. Most of us have heard about ‘horror stories’ of how people have lost money heavily in stock markets. Though the stories may not be wrong , they don’t give the entire story!

Keep this pressed in your mind – most people have lost money in stock markets because they speculated and they wanted to become overnight! In fact those who have invested in the stock market investing systematically, have actually created wealth!

Moreover - passive non-HNI investors have generated wealth by taking the Equity mutual funds route, while HNI investors who invested directly in stocks for long term too created wealth.

Let’s see what the past fifteen / Twenty years compounded returns have been :-

Clearly , therefore, 'Equities' must be contemplated if one wants to beat inflation and generate long term wealth. For investors like all of us - investing through the Mutual funds route is the optimum method!

More such informative posts are on their way. If you think they have helped you, spread this link to your friends OR tell them to search 'letslearnmoney' on FB!!

Till then,

CA Rajiv D Khatlawala

Author, FinTrainer and Consultant.