Grow faster than Inflation

Food inflation is averaged at 15-20%, all the products of our regular consumption are increasing at an alarming rate. The following is the value increase of some essential goods of consumption in the last 1 year.

Table

These are some of the consumption that we cannot afford to forgo in our daily life. When the whole world around us is growing at such high speed, if our savings are not growing at 15-20% per annum, how can we afford to have, leave alone growth in our standard of living, even the life of current standards 5 years down the line?

We will be forced to compromise at least 40% of our present standard of living. That is, if you buy a dress once every month, after 5 years you can only buy it once in 2 months. If you are using Dove soap, you should have to down grade to a Lux or Hamam.

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If you dine-out once a week now, probably you will have to have it once a month later.

Watching your favorite programs on TV?
Downgrade to a School with lower fees
What will be our life?
How much of compromise will there be?
Can we accept it?

Cost-of-Living

If the same is continued for another 5 years, maybe you may have to skip one meal a day. And then think about the way the other things will follow, it is going to be a serious situation of permanent financial drought in our life.

None of us would want this to happen, but it is inevitable if our savings are growing at 6 – 10 percent by investing them in fixed deposits, Gold or Insurance products.

The first thought that will come to your mind when you watch your loved ones will be, How to keep them happy?

We may or may not have the opportunity to increase our income by 15-20% every year, because it depends on every person’s skill set and value addition we provide in our vocation. But, one thing is always at our reach. To grow our savings by at least double the published inflation rate, so that the accumulated corpus takes care of some portion of the high cost of living at least to the current standards if not something extra ordinary.

Our investments should be made in such asset class which grows above the prevailing real inflation rate, not the announced inflation rate which is around 6-8%. Where can we get such returns?

Real Estate and Equities are the only option.
Real estate has tremendous growth potential but, it requires huge capital and has its own pitfalls with documentation and will generate black money which will have limited use later. And more important you cannot invest in small monthly investments.

Equities are one asset class which has all the qualities for high return, highly liquid, you can begin even with as low as Rs. 1000 a month. Investment into companies that form our economy. We may not have the edge to get our income grow by 15-20% every year, but our investment can buy a share in a company that has excellent talent, which has the possibility to grow more than 20%. When the company you invest grows you get a share of its growth, by that way your savings grow at double the speed of inflation.

Equities are liquid assets, any time you have an emergency you can withdraw and you can do it the extent of your requirement. Whereas in real estate, it does not happen when we need it, we need to wait to find a buyer, and if our need is 10.00 lakhs and the property that we have is worth 25 lakhs, we have no other alternative but, to dispose the whole property. In that way we lose the further gains.

Only hurdle that Equities have is the quality, the selection of the companies that have the best growth potential. Every one of us may not possess the talent, but we can get the service of professionals who have experience in doing it the better way.

Take a decision, have a part of your savings invested in Equities, follow your investments with discipline, over a period you will realize that you have made a wise decision when the funds that you have accumulated helps you pay for your retirement expenses.

Happy Investing.

About Author

Ramesh Sigamani

Ramesh Sigamani

With over 3 decades of experience in capital market investments, Ramesh Sigamani is a trusted Financial Planner par excellence. He works personally with individuals and corporates to build a strong investment portfolio that stands firm against market volatilities and delivers time & time again.

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