Why Investing is Easy - Chapter#2

                                 Ok time for Chapter#2. A quick recap on what we saw in Chapter#1, that a monthly investment started in Jan 2019 in an Equity Mutual fund could have given a return of 19% -23% P.a. or a Lumpsum investment made on the same day would have doubled by now.. Yet not many invested. Lets try and answer that through this blog.  

                When we invest, the only thing we look for is "Returns" and here is the return profile of the Investment started in Jan 2018. 

An investment of 3000 monthly that is 36,000 for the year will have a ending of value of only ~36,000 with absolutly no growth and in one case, The current value is lesser than our invested value, Alas!  now tell who will have the courage to invest in Jan 2019? Remember the ad - Investment are subject to Market Risks.." That would have played on our minds on loop. 

Next lets go back a little more and see how the investment started in 2016 would have fared - 

So on a total investment of 1.08 lacs, Our profits after 3 years would have been just ~20,000. Since we are maths genies, we would go like 20,000 divided by 3 years is just 6,000/year which is only 6% returns. (6,000/1,08,000). But mind you, the XIRR is what we should look at and it  works out to be about 10%. 

During the same period PPF was carrying average Interest rate of 8.6%. Its just natural to think that for 1% extra why should I take "Risk" ? Oh come on, we are better off investing in FD/PF.. Note that these are the exact funds that have given great returns today. They are so many examples from past 20 years where prospective investors never became investors because the returns have not been "Great" in the recent past! . 2000-2003, 2010-2013, 2015-2017 and many more... The thing is even though most of us know that Equity Investments are meant for long term, we tend to look at the short term returns and Never start investing. 

Lets flip the coin - 

There are always 2 sides of the story. So lets look at other end of the spectrum that is when the market returns have been great (like recent past from today!). We have propective investors who do not start investing because the recent returns have been great! Yes you read it right. 

For the markets to give great returns, they need to scale a new peak or beat their old highs. Now ask yourselves or look around, how many times we or our friends have not started investing because the markets are at all time high or at peak or have been going up for past few months/years! Their resoning is very simple, since the markets have run, wont there be a fall? Let me invest after that "Fall". And there you go! We Never Start Investing. Its just comman sense that Markets will either be going up scaling peaks or going down to justify the economic prospects. So none of us will get that sweet spot where the markets have given great returns in the recent past but are not near their All Time/previous highs. 

Yes of course, Investing looks easy. All that one has to do is open a demat/MF account and start investing.. But oh God! When do I start investing? Markets are either up or down and they scare the sh** out of me.. But of course Investing is easy, All that one has to.. ha.. ha... 

Will we ever get started?!?

Look out for a very interesting Chapter# 3.. 

For any financial Planning queries, Please contact Droplet Wealth at invest@dropletwealth.com.