I got many queries i.e. where to invest, how much return we will get, where is risk and what if we won't invest after my blog post about power of investing. So I wrote it to answer these question. I will try to put it in the form of story so that it would be remembered for a longer period of time.
We can divide everyone in three type of investor:
- Brahma: The creator, who believes in creating by taking calculated risk.
- Vishnu: The preserver, who believes in preserving money so he won’t take any risk. He just have to preserve money by inflation.
- Shiva: The destroyer, who doesn’t care about money at all.He believes only in earning not in investing.
So Brahma and Vishnu went to portfolio manager Ms. Laxmi, who is expert in making money. Having discussed with them, Ms. Laxmi advised Brahma to go for Equity Market and Mutual fund where returns are high with some risk. And advised Vishnu to go for Fixed Deposit and Public Provident Fund where risk is zero with little return. On the other hand Shiva left his money as it is.
So let’s see one by one how their money is growing over years having invested 1 lakh.
1: Brahma: [Equity Market, Mutual Fund and SIP]
Capital Invested: 1 lakh. Duration: 20 years.
Inflation adjusted interest rate: (15-5.6) =9.4% (approximate) (inflation =5.6%)
Total Money after 20 years: 6,03,040 (actual value of money).
His money grew by 6x in span of 20 years.
2: Vishnu: [Fixed Deposit and Public Provident Fund]
Capital Invested: 1 lakh. Duration: 20 years.
Inflation adjusted interest rate: (8.5-5.6) =2.9% (approximate) (inflation =5.6%)
Total Money after 20 years: 1,77,136 (actual value of money)
His money beats inflation and grow by 1.7x.
3: Shiva:
Capital Invested: 1 lakh. Duration: 20 years.
Inflation adjusted interest rate: (0-5.6%) = -5.6% (approximate) (inflation =5.6%)
Total Money after 20 years: 31,582(actual value of money)
Since he hasn't invested his money anywhere so inflation devalued his money and after 20years he has only ~30,000 in his account.
As you can see, by just putting a small effort in investment , you would grow your money like a professional.
As Peter Lynch said “In the long run, it’s not just how much money you make that will determine your future prosperity. It’s how much of that money you put to work by saving it and investing it.”