Site Loader
Spread the love

When we talk about investing in STOCK MARKET there are multiple reactions.  Frankly, whatever the reaction is – one cannot ignore EQUITIES for the simple reason that no other avenue offsets inflation effect, on our net worth, like equity does.  Just to simplify this point equities are the best hedge against inflation. 

Let’s assume we bought an article at Rs. 100 in the year 1980.  The same article costs Rs. 1,830 in 2019.  Due to inflation we are paying much higher for the same article.  The value of what we buy may not have changed but the same thing costs much more today as compared to few years ago.  We often hear our parents or grandparents say about increase in cost of education, real estate etc.

     The text book definition for inflation is “quantitative measure of the rate at which the average price level of a basket of selected goods and services in an economy increases over a period of time. It is the constant rise in the general level of prices where a unit of currency buys less than it did in prior periods. Often expressed as a percentage, inflation indicates a decrease in the purchasing power of a nation’s currency.”  In short, inflation is when the price of goods/services increase over a period of time leading to decrease in purchasing power of money.

     Inflation to some extent is good for economic growth.  Let’s imagine, you want to sell a house bought 10 years ago for Rs.25 lakh.  As a seller you would definitely like when the price of that house increases over time.  You like to see inflation effect.  However, had you kept the same money in the bank you would not be able to buy the same house even if you put together all the interest you have earned.  Why? The purchasing power of money has gone down.  You will have to pay more to buy the same thing.

     The above example shows how idle cash is not good enough to cater to our future needs.  If someone keeps saving most of his/her earning and keeps it only in savings account it would be difficult to manage the expenses during retirement.  The simple interest earned would not offset inflation rate.  On the other hand investments in real estate are not very liquid to keep buying and selling several times.  A disciplined equity investment over a long period of time can do the magic of beating inflation.  Shown below is the annualized return on India’s index Nifty 50.  Nifty 50 is India’s index consisting of 50 companies across various sectors.  You may check the factsheet on the link below.

https://www.niftyindices.com/Factsheet/ind_nifty50.pdf

SO HOW DO WE SIMPLIFY THIS INFLATION ISSUE ?

     For those who have no time and do not want to take big risks the best way to invest in equities is through Systematic Investment Plans (SIP) in exchange traded funds (ETF).  Since Nifty is an index i.e. basket consisting 50 listed socks, the collective return on those stocks can be replicated in an ETF.  ETF is similar to mutual funds and is more economical in terms of management fee, these are similar to index funds. Since index ETF track an index the administrative costs are less than mutual funds.  Mutual funds need fund managers to decide where and when to invest.  You can enter and exit from ETF anytime using demat account.  These are most simple and liquid investments.  There are many ETFs on variety of indices including gold.  The return on ETF is similar to the performance of the underlying index itself.

     Minor difference between ETF and index funds is that ETFs are priced to market throughout the trading day and are available on demat accounts.  Index Funds are priced at close of trading day based on NAV(Net Asset Value) of the underlying securities.

     On the other hand, you can select mutual funds.  There are hundreds of mutual funds these days.  One has to be careful in choosing a fund.  It is worth checking the track record of the fund manager, return on fund over years and the size of fund house.  This information is available online and is very important to know before putting in hard earned money for years to come.  Safeguarding the capital is of utmost importance in any form of investment. 

     Finally, there is no one better than you to manage your money.  Best thing to do is study the markets yourself and invest in your favorite stocks.  That way you can make out if the fund manager is not making correct decision or maybe you could perform better than the index.  We give decades to learn how to make a living and earn decent money.  It makes sense to devote time to learn how money can work for us too.  Time and money goes hand in hand. What you focus becomes your priority.  If focus is on investment then giving it the time it takes is a priority too.  Financial knowledge helps to know if the person managing our wealth is misusing you or leading you in right direction.  Just like cooking, driving, swimming – knowledge on investing is basic requirement which cannot be ignored.  Happy Learning Happy Investing.  EQUITY ROCKS !!!

Rashmi


Spread the love

Post Author: rashmi

41 Replies to “EQUITY BEATS INFLATION”

  1. Hey there 🙂

    Your wordpress site is very sleek – hope you don’t mind me asking
    what theme you’re using? (and don’t mind if I steal it? :P)

    I just launched my site –also built in wordpress like yours– but the theme slows (!) the
    site down quite a bit.

    In case you have a minute, you can find it by searching for “royal cbd” on Google (would
    appreciate any feedback) – it’s still in the works.

    Keep up the good work– and hope you all take care of yourself during the coronavirus scare!

    1. Hi Justin,

      Thanks for stopping by my blog. Thanks for taking time to comment here.

      I use a theme called Twenty Seventeen in wordpress. Nothing more. I just keep writing what comes to my mind.

      Good luck for your new launch. Stay safe.

      Regards
      Rashmi

    1. Hi,
      Thanks for taking time and writing a comment. Am glad it interests you. Many more to follow…happy blogging and good luck

  2. Thanx for the effort, keep up the good work Great work, I am going to start a small Blog Engine course work using your site I hope you enjoy blogging with the popular BlogEngine.net. Thethoughts you express are really awesome. Hope you will right some more posts. Lydie Randal Corene

  3. For the reason that the admin of this web page is working, no hesitation very quickly it will be well-known, due to its feature contents. Abbe Tobit Lunn

  4. Excellent web site. Lots of useful info here. I am sending it to some buddies ans also sharing in delicious. And of course, thank you for your sweat! Susann Bernard Kaylil

  5. I wish to voice my admiration for your kind-heartedness for those individuals that really want help on this subject. Your special dedication to getting the solution up and down had become quite invaluable and has really enabled employees just like me to realize their pursuits. Your own important help and advice indicates so much a person like me and still more to my colleagues. Many thanks; from each one of us. Lulita Nolan Attah

  6. Thank you for the good writeup. It in fact was a amusement account it. Look advanced to more added agreeable from you! By the way, how can we communicate?| Deidre Andrey Adrianna

  7. Thank you Michelle. It is an important tip to understand the culture of where we need to visit and teach the kids the basic manners too. Madlen Adrien Einhorn

  8. Pretty part of content. I just stumbled upon your website and in accession capital to say that I acquire actually loved account your weblog posts. Anyway I will be subscribing to your feeds or even I success you get entry to persistently fast.| Lorry Alan Adolphe

  9. Hello there, I found your site via Google while looking for a related topic, your web site came up, it looks good. I have bookmarked it in my google bookmarks. Gill Jarret Garth

  10. Excellent blog here! Also your web site loads up fast! What web host are you using? Can I get your affiliate link to your host? I wish my web site loaded up as quickly as yours lol Jeannette Link Trip

  11. Your means of describing everything in this piece of writing is genuinely pleasant, every
    one can without difficulty know it, Thanks a lot.

    asmr 0mniartist

  12. You’ve made some really good points there. I checked on the web for more information about the issue and
    found most people will go along with your views on this web site.
    asmr 0mniartist

  13. I’ve been surfing on-line more than three hours today, but I never found any attention-grabbing article like
    yours. It is lovely value sufficient for me.
    Personally, if all website owners and bloggers made just right content as you probably
    did, the internet can be much more useful than ever before.
    0mniartist asmr

  14. Have you ever thought about including a little bit more than just your
    articles? I mean, what you say is fundamental and all.

    Nevertheless just imagine if you added some great
    visuals or videos to give your posts more, “pop”!
    Your content is excellent but with images and videos, this site could definitely be one of the most beneficial in its
    field. Amazing blog!

  15. Greetings! Very useful advice in this particular article!

    It’s the little changes that produce the most significant changes.
    Thanks for sharing!

  16. Its such as you read my mind! You seem to know so much about this,
    like you wrote the ebook in it or something.
    I think that you can do with some percent to force
    the message home a bit, however instead of that, this is wonderful blog.
    A fantastic read. I’ll certainly be back.

  17. Your style is very unique compared to other people I’ve read stuff from.
    Thanks for posting when you’ve got the opportunity, Guess I will just book mark this site.

  18. Hi there! This blog post couldn’t be written any better!
    Going through this post reminds me of my previous roommate!
    He continually kept talking about this.
    I’ll forward this post to him. Fairly certain he’s going to have a great read.
    Many thanks for sharing!

  19. Hello, Neat post. There is a problem together with your
    site in internet explorer, could test this?

    IE nonetheless is the market chief and a good element of folks will pass over your fantastic writing due to this problem.

  20. Hey would you mind sharing which blog platform you’re working with?
    I’m planning to start my own blog soon but I’m having a difficult time choosing between BlogEngine/Wordpress/B2evolution and
    Drupal. The reason I ask is because your layout seems different then most blogs and I’m
    looking for something unique.
    P.S Apologies for being off-topic but I had to ask!derma prime plus reviews

  21. An interesting discussion is worth comment. I think that you ought to write more
    on this issue, it may not be a taboo subject but usually folks don’t
    talk about such issues. To the next! Many thanks!!

Leave a Reply

Your email address will not be published. Required fields are marked *