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There are major three asset classes for investment to increase the value of your money.
- Gold
- Property
- Equity (Stock Market)
Gold is good investment, but its return is just more than inflation in long term say 10 to 20 years. It just beat the inflation. Silver is very volatile.
Property is good investment, but it is very illiquid. That means when you want to sell it, you doesn’t get your right price. Value of property always increase along with the annual average wage of people says 8% to 12%.
Equity is best investment class in long term say 7 to 10 years time horizon, but it is very risky in short term say 3 months to 1 years time horizon. Fifteen years compounded annual return of Indian Stock market is more than 16% .US stock market 50 year compounded return is more than 11%. These returns are far more than average Indian inflation of 8% and US average inflation of 4-5%. So invest in equity for long term perspective. In long term say 7 to 10 years time horizon, risk become zero in equity. So invest in equity only for long term.
Don’t try to make killing in stock market It is very dangerous thing in very short term. Have reasonable expectation say 15 to 20% annual return from equity in long term. Have discipline approach of investing through Mutual Fund, Exchange Traded Fund (ETF), equity investment through IPO (Initial Public Offering) and direct purchasing from secondary market (called stock market). If you don’t have time to do homework, take advice from experts. Stock market is leading indicator of every country economic development. That is, if stock market is falling, economy is not doing well and if stock market is rising, economy is doing well. Investments are rising in country.
If you have invested Rs 95000 in Infoys in 1993 at the time of IPO, your money had become 3.4 crore in 2003. If you invested 10,000 in wipro at the time of IPO in 1984, it has also grown to 3.8 crore in 2003. Similar is the result from ITC in 20 years. These are the only samples from fundamentally sound companies with good business prospect. Always invest in sound business with good track record of 5 to 10 years. Always diversify your portfolio in different asset classes as below.
- Gold (10%)
- Property (20%)
- Equity (60%)
- Others e.g FD, PPF, NSC etc (10%)
Ideal portfolio is 50% equity and 50 % other asset classes. No asset class can beat equity in 10-20 years horizon.
