Simple Facts – Missed by Many!
People investing in a house, land, gold jewellery, etc., are CONSUMPTIONS; INVEST IN fiNANCIAL INSTRUMENTS THAT GIVE yOU good returns and create wealth and liquidity.
“Life is simple, but we insist on making it complicated” – Confucius
Simple practices such as taking a short walk, spending time in nature, consuming tender coconut/buttermilk among others, are good for our physical health, while elements like love, sharing, kindness and forgiveness are vital for our mental health. All these are easy and simple to follow.
Similarly, when it comes to our financial health, there are a few simple and common aspects missed or overlooked by many. Property, Gold and financial investments are major categories of investments. If you are buying land or a house for living purposes, then it is consumption. Similarly, if you are buying gold/jewellery to wear or to gift, it is consumption. In these scenarios, we need not focus much on the appreciation of these assets, as it is more of utility and satisfaction. However, most often we tend to anchor in the growth prospects of these asset classes. Let us take a closer look at this phenomenon through proven examples.
“Everything in life is relative” – Albert Einstein.
If we need to understand the growth potential of a particular asset class, we need to compare it with another asset class, to know the difference. In the long term, one of the best wealth-creating asset classes is equity.
To share a stunning and interesting fact: Let us compare the performance of Gold and Sensex. In the year 1979-80, Sensex was factored at 100 points which as of February 2024 has surged multi-fold to around 72,000 points. This means if you had invested Rs.100 in 1979 the value of that investment today would be worth Rs. 72,000 i.e. a growth of 720 times.
Now coming to gold. If you had invested the same Rs.100 in gold in the year 1980, the common assumption is that it would have been much more than Sensex. The reality is, today the value of gold would be only Rs. 4,620 or 46 times. This can be explained by examining the cost of gold in 1980, wherein 10 grams of 24-carat gold was available at Rs. 1,330. In effect, one gram costs Rs.130. For Rs.100 you would have received 0.77 Grams. Today the cost of 0.77 grams of gold is Rs. 4,620. (24 Carat)
During certain periods, gold prices tend to rally sharply after a long period of consolidation or when equity markets are volatile. However, these fluctuations should not be considered for higher investments in gold aside from what is deemed necessary for asset allocation purposes.
On the other hand, investment in property is not recommended except for personal consumption purposes. The often missed point is that very few pockets have seen significant value appreciation over decades. Additionally, selling a property may entail several other factors like unaccounted money, potential differences in expected prices, delay and various charges that may impact the overall transaction outcome.
When it comes to investing in asset classes such as equities, it is best done through professionally managed avenues like Mutual funds, Portfolio Management Services (PMS) or Alternative Investment Funds (AIF). When comparing property investments with financial assets like mutual funds several other crucial factors come into play.
Owning a property and gold is acceptable as it gives many a sense of accomplishment and satisfaction. However, financial assets are strongly recommended for investment purposes.
Simplicity is the ultimate sophistication. - Leonardo Da Vinci
To conclude, the consumption and utility of property and gold are acceptable as they provide many with a sense of accomplishment and satisfaction. However, for investment purposes, financial assets are strongly recommended.
Within the realm of financial assets, equity investments have proven to create great wealth over the long term. Hence it is recommended to invest in Equity Mutual funds, PMS & AIF for long-term wealth creation.