Greetings from PenguWIN:
Today, we are completing 5 years of business and stepping into 6th year. It was on 4th July 2014 that we started this journey and we have made good progress so far; thanks to our clients, friends and well-wishers. Businesses like us thrive on references and the experience that we are able to offer to clients. I sincerely request you to provide your support on this.
There are a couple of observations that I wanted to share. It might not be new but given the importance, reinforcement would definitely help:
Equity as an asset class is proven to give the maximum returns over a long-term period, longer the better. That does not mean that 50 or 75% of our investments needs to be in equity and the allocation to equity required varies from person to person. However, I come across 2 types of investors:
- Investors who continue to believe that they don’t want to take any risk and invest only in guaranteed return instruments like Bank and Postal FDs, Provident Funds, Bonds. However, even pension money and provident fund money gets invested in Equity and Corporate bonds (Mutual Funds) as guaranteed returns of 8.5% is too high a number to sustain. Risk is there in all aspects of life. Rather than avoid risks, we should be able to manage it effectively. Is it possible to stop driving saying accidents are increasing or avoid a bypass surgery as there could be a negative outcome?
- While the first type of investors are totally risk averse (though changing slowly) the second type of investors think that small investments in equity will take care of their corpus requirement. For an investor who takes home a salary of 1 lakh/month, having a 10 L sedan car, living in an apartment valued 75 Lakhs with a home loan of 60L, a SIP of 10k/month will not make a difference. Assuming a return of 12%, 5 years investment totalling 6L will result in a corpus of approx. 8 lakhs, which is too small a number to make an impact. In 5 years, the person’s salary would have doubled but instead of a proportional increase in SIP, they continue with the same number of 10k/month.
Retirement is one of the most critical goals for us and given the increasing lifespan, lifestyle related diseases that is affecting people at an early age, shortened career span of people in certain industries, this is an area where meticulous planning and tracking needs to be done to ensure a sufficient corpus.
Consistency in returns from equity increases with time. While the initial years will have wild swings of corpus returns, they will stabilize over time. When we say that 5+ years is the time horizon for equity investments, it is based on business cycles and historic return pattern. Rather than looking at the returns from equity funds on a continuous basis and trying to change the fund, time in the market or duration of investment is important. That does not mean that we have to stick with funds with below average performance for a long time but allow that decision to the financial advisor
Once again, we thank you for your support and will continue to conduct business with utmost sincerity, keeping clients interest first.
Games are won by players who focus on the playing field — not by those whose eyes are glued to the scoreboard. – Warren Buffett
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