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D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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Treat it the same way

Posted by Muthu on April 14, 2017

Wishing you and your family a very happy Tamil New Year.

We are generally good at holding on to assets. The house we own might have been bought by our father and our daughter may continue to own it. It is not uncommon for gold being passed on to many generations in a family. Despite being low return assets, we have positive experience with house and gold because we rarely make loss in the same.

The reason for not making loss is because we hold them long; from decades to generations. Volatility and corrections get smoothened over such long stretches resulting in secular uptrend. I know many who bought home 5 or 7 years ago and there has been no appreciation. They are fine with it. Gold’s price is lesser than what it was some years ago and people are ok with the same. Culturally we’ve a natural inclination to hold on to those assets. That’s a big blessing resulting in positive experience from these asset classes.

Other than a small number of families, who are exposed to equity in early age and taught about its nature or first generation investors who are able to get this understanding, most investors find it difficult to hold on to equities. Unlike real estate, equity is extremely transparent and liquid. A price quote is available every day. You find both buyers and sellers also every other day. This coupled with every day volatility and periodic corrections make people not to hold on to this high return asset.

Advisors like us help you to understand equity. The key understanding is that in short run the prices move due to sentiment and liquidity and in the long run, prices move only due to earnings. Companies and portfolio which continue to keep growing earnings will only move in one direction, which is upwards, in the long run. There are many stocks, why stocks even mutual funds, which have grown by 40 times to 100 times in last 20 years.

We believe at 15% expected returns, we can hope to multiply capital by 4 times in next 10 years and 16 times in 20 years. This would be possible if you treat equity in the same way as you treat house and gold; holding it for decades and for generations.

If you can apply your learning from house and gold to equity, it would give returns much higher than what these conventional assets have given. World over, equity is considered as the highest compounding asset class. All it is needed to get it’s benefits is to apply your learning and start treating it in the same way as you treat other assets.

Fair and equal treatment is a very legitimate demand.

Grant it and grow rich.

3 Responses to “Treat it the same way”

  1. AGB said

    well said

  2. Senthilkumar SD said

    Well written article on equity.

  3. ish prakash said

    pis sir advise me top 5 sip fund…….invest 500/-Rs per month

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