One of the world’s greatest investor, Mr. Warren Buffet once said “you’re sitting under the shade of a tree because someone once planted it”. Many of us are not interested in planting trees today because it takes too many years to grow it and the benefits are not immediate. Growing your money is similar to growing a tree and patience holds the key. I remember buying a certain stock some time back hoping for it to appreciate because of some news about that share that i had read in the papers. Everyday i eagerly waited for the sudden spurt in the value of the stock at which time i wanted to sell it and realise the profits however with each passing day i only found that the price was more or less the same or at times was even lower than my purchase price. One fine day impatience got the better of me and i sold the share at more or less the same price that i had originally purchased it. A month later the share had risen around 30% and I realised that my decision had indeed been bad. This made me think of an old adage which says “The best holding period of a stock is forever”.
I am a commercial banker by profession and in the year 2010 my bank had a tie up with a certain insurance company, and they had at that time introduced a new insurance scheme which invested your money in the stock market and they promised exorbitant returns in a very short period. It was making a lot of news at that time and was a major topic being discussed by financial experts back in those days. As a young enthusiastic bank officer, i did my part in marketing the product and selling the same to my customers. Two years down the line i had an extremely tough time in explaining to customers that they had not only earned zero returns they had in fact lost a part of their principal too. In the year 2012 when i was heading a bank branch in Bangalore i remember having a customer who was running a finance company. Even though i had my own apprehensions about this business i did not make it known to the promoters because they always seemed to have good balances in their accounts and their account operations seemed immaculate always. They promised extremely high returns to their clients a rate that was unmatched by banks and traditional investment options even in those days. A year went by and one evening i was relaxing in my house watching the news and ended up listening to this horrifying story of this particular company who was the same customer and he had shut shop and had run away with crores of investors money.
These things are easier said than done. There are different ways of growing your hard earned money, one is the traditional investment options such as Bank Fixed deposits, post office savings, Sovereign Gold bonds, National Pension scheme and various high rated debt instruments and government backed securities and these options are safe and the returns are assured. Other investment options include direct investment in stock market, mutual funds, REIT’s, Real estate etc. These are more riskier and the returns are not guaranteed. In any case, basic thumb rule of “higher the risks, higher the returns” always applies. Moreover a persons risk taking is dependent on various demographics with age being the primary. When a person is younger “Wealth maximisation” is his utmost goal, person is more updated, active and keeps track of changes in the markets and hence risk taking ability is much higher. Whereas for an older person, “wealth preservation” and a monthly/ regular returns for the persons sustainability takes primary focus and takes centre stage of his requirements. Even though bank deposits have in recent years lost their sheen due to the continuous reduction of interest rates owing to the policies of the government and the RBI, they still continue to be the most reliable, easiest, convenient, and also most flexible investment option. Even though interest rates have dropped, the trick here is to select small sized private banks who pay higher than their nationalised counter parts. Another point to be noted is that these deposits offer atleast 0.50% more interest rates for senior citizens than for the regular citizens. These banks are not just sturdy but your principal and interest will be safe and assured. Mutual funds in the last few years are becoming more and more popular and in my view this is the going to be the future of young india. In this, again the trick is to mitigate risk by choosing a plan which has more of debt and less of equity or a equal measure of the both. Before investing in MF’s please make sure to hold the plan for a substantial period whether the scheme is a SIP or a one time investment. Alternative and high risk investment ventures such as BITCOIN, derivatives, commodities market and the like are mostly for the very young and effluent whose risk taking ability is very high and have enough cushioning to support themselves if at all a certain bubble were to burst. Even though banks are being criticised for the reducing interest rates let me tell you that many banks for senior citizens are offering interest rates of 7.50% almost which is still great considering, your principal is safe at the same time offering a decent returns on your investment.
As far as becoming rich is concerned, I remember reading two basic rules in this regard, first rule is “Invest right and Never lose your hard earned money” and rule number two is “Remember rule number one”.
– Rayner H Ephraim