Except investing more and investing for a longer period MAN will do anything to increase his wealth.

Fairly obviously the person who starts early, invests more, for a longer period WILL have more money in the corpus assuming the same CAGR.

SO a person who starts at age 23 investing Rs. 3000 a month – and keeps increasing by say 10% every year and puts it in an index fund (growth option) will have much more than a person who starts LATER, invests a fixed amount (does not increase it regularly) and keeps money in say a PPF or a bank RD.

However when you ask people to do a SIP here are some things that you hear:

1. Will Real Estate not give better returns?

My reply: a) you already have about 90% in RE, so why more?
b) i do not know of any RE investment WITHOUT LEVERAGE and allowing you to benefit by investing say Rs. 50k a month. SIP can be done for an amount 1/100th of that.

2. I agree that if I invest Rs. 100 a day for 30 years with a reasonable return I will have Rs. 4 crores – BUT WHAT WILL BE THE VALUE AFTER 30 years?

My reply: Brilliant. I only know that it will have a much higher value than what you will have if you did not INVEST at all. Is that not good enough?

3. How can you be sure that ONLY equities will perform well over say 30-40 years?

My reply: Sure it could be gold, silver, oil, horses, Dow Jones, Hang Seng could all take turns, but there is no fund manager IN THE WORLD who can do perfect asset allocation for you TODAY and hold it constant for the next 225 years. After all managers are mortal.

4. My father says Equity markets are risky, and I should keep my money in PPF alone.

Brilliant. What else did you listen to your dad to? Education? marriage? job choice? if the answer to these 3 are NO, NO, NO, then stop pretending. You find it convenient so you CLAIM to be listening. And if your dad has not exactly created at least about Rs 20-30 crore of wealth, why do you think of him as an Indian Buffett?

More questions, more answers…

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  1. Subra- people are ready to pay EMI for RE but not SIP for the same amount. The reason (in my experience) is they don’t have real life examples (really MANY examples) where people have become wealthy by doing SIP. All they hear from their chaachi ki dost ka bhatija (and many similar network nodes) is how they had a multi bagger investment in RE.

    When people are not ready to analytically think for themselves(it’s not convenient) ,this is bound to happen. Solution is education, discipline and commitment, all of which is hard work 🙁

  2. Excellent post Subra….

    The thing I noticed about all those SIP vs RE bargain is (most of) people in India do not own a residential accomodation, hence they may feel investing in RE more appropriate than in SIP.
    For someone like me (I do not own a house but my dad does) SIP is more appealing than RE…

  3. Excellent Post Subra!!!!

    One way to look at this SIP vs RE conflict is to see how many of them (against SIP) do own a house. Basic need for accomodation might surpass the idea of SIP and people may think to invest in RE (like instead of paying rent while paying SIP, they would think to pay EMI)

    After all One White Wizard 😉 have rightly said “House is an Emotional Purchase” 🙂

  4. Excuse: Investing in shares is a ‘gamble’. If you are lucky, you win, else you loose everything.

    Answer: It’s a gamble only if you invest on somebody’s tips or in penny stocks. Not if you thoroughly analyze the stock or invest in a diversified Mutual Fund with good long term track record.

    Excuse: Their is no guarantee of returns in Equity. Real Estate/Gold give definite returns in long term.

    Answer: Their is no guarantee in other asset classes too. Only thing is their cycle is longer than equities (equities being more volatile). Even real estate/gold has crashed in past. If you are investing for long term, surely equity also has similar probability of giving returns like other asset classes.

    Excuse: I don’t know how to invest in shares. It’s too complicated.

    Answer: Google it. It’s marketed as complicated by those who don’t want to understand equities. In fact, it’s simpler than buying a Real estate.

  5. @Jitu: You can’t consider the house in which you live as an investment. It’s your need and you cannot sell it because it has appreciated. I don’t own a house currently but plan to buy one in 15 years (in cash). So investing in equities (SIP).

    Subra Sir, please correct me if otherwise.

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