Roti,Kapada aur Makaan “Investment”

People think an investment is not essential

There was a Bollywood movie “Roti, Kapada, and Makaan” (Bread, Clothing and House). The movie enforced the idea that the House is as essential as bread and clothing. But in the 21st century, it should be Roti, Kapada, and Investment. Those days House used to be constructed on the land. According to dictionary.com House means a building for human habitation, especially one that consists of a ground floor and one more upper story. With passing time the cities have grown and many Makaans have been converted into multi-story buildings with apartments. The investor thinks that the high story building will increase in value over time. But the value of the flat itself has remained flat from the past XXX years. The markup in price has benefited only developers.

Property is being treated as an investment, and this notion has to change especially among Asians. Many people have “invested” in apartments and the value of these is not increasing for a decade. Earlier there was a genuine reason for the increase in property value. This makes people believe that the past will repeat itself. That’s why “we don’t trade our flats, but we trade our stocks”. Similarly “We don’t trade our gold, but we trade our stock”. We are highly attached to both the asset classes.

Cost of Delay in Decision Making

Image source: Google

If you had kept $200 in your pocket as cash 20 years ago, the currency note would have been intact today. But the purchasing power would have reduced considerably. Many people keep cash idle in a fixed deposit or in a savings account or lockers because they are not aware of better options, or they want immediate access to the funds in case of planned and unplanned expenses. They want to play too safe.

Most of us have had our salaries increased over the years. For example, my salary used to be Rupees 2 lakh a year and today my salary is approximately Rupees 3 to 4 lakhs per month. This is roughly 10 times gain in 15 years. I am sure many of you would have done the same with your salaries. I wish along with this increase in remuneration, I would’ve also multiplied my savings in the last 14 years by 10 times by investing in the equity market or real estate. But like any other middle-class investor I also played too safe unknowingly.

The standard of living has also increased. We are no longer content with traveling in sleeper coaches or living in a simple house. We are now used to AC coaches and luxury apartments but our investing style has not changed. We still believe that parking our money in LIC like investments, debt funds or gold is the best way to secure our financial future. In short we are attached to everything we do.

Neither our college nor our school teaches us how to be a good investor. We fail to understand that it is our behavior that decides whether we will have sufficient money at the time of retirement. We cannot blame the bad stock market or the property market or the ultra-rich for our failures.

Not willing to hire the Financial Expert

My Clients say that they are very happy when their children working in Google, Apple, Amazon, Ola, Uber, etc., and they earn more than they themselves earned at the same age. But, they hardly realize how these companies are creating fortunes.
Above companies are sharing their profits with their employees. They encourage ownership, accountability & responsibility through e-sops, shares, and bonuses, etc.,

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Image: Google Source

Small Goals
Most of us are having goals that we want to retire by 60–65 and have enough money with a peaceful life. But, our goals are changing and needs are increasing high even if the essentials needs are not meeting the amount that we have made. So, the question is “Should I have a small goal or should I look for an alternative?”
As HDFC Chairman, Mr. Parekh said, “Think big and act small.” Common junta does exactly the opposite. A lot of us are working in corporate companies but there is no guarantee that corporate companies will perform well. But we still ask for a guarantee, nowadays even government jobs are also not having job security. Then “why are we looking for guaranteed returns? Do we think there is something guaranteed in this world except death?”

Bad Asset Allocation

I meet so many investors and ask them how much percentage of their portfolio money is in equity investments. The answer from them doesn’t come from more than 10% to 30 %. Let’s say your portfolio total assets is 10 crore or Mio dollar. You have kept 7–8 crore or Mio dollars in debt. (Debt means debt fund, residential property, fixed deposit, gold etc.., Equity means the money which can compound multiple times). Our mind is not where our hands are.

I think here is a very important concept missed by all the investors is the power of compounding. We are using Apple Inc’s products, Amazon for our shopping, Facebook for keeping our photos and expressing our thoughts, some of us play social games every day. We all are using those products which are very cheap or let’s say very convenient and good for our daily life including Netflix, YouTube, Disney. But, our allocation to these companies is close to none.

Read more about the power of compounding on the Internet. My investment gurus Warren Buffet, Raamdeo Agrawal have spoken about it again and again. It works wonderfully with time and it’s also the 8th wonder of the world.

There are various other reasons but above are a few important ones where we fail as a good investor. When we fail as investors to make enough money we might have to sell our properties at retirement or when health problems occur. We start abusing the whole world around us and blame the economy, ultra-rich and government. “It is the big people who are not paying taxes; The government should reduce taxes etc..,”. Let’s not fall for the attractive guaranteed investments, let’s become informed investors. It is our responsibility to become an educated investor.

Quotes:- Someone is sitting in the shade today because someone planted a tree a long ago
Don’t save what is left after spending, but spend what is left after saving. -“Warren Buffett”

*All views expressed in this article are those of the Author and assumptions made in the analysis are reflective of none other than the author’s view and since we are critically-thinking human beings these views are always subject to change, revision & rethinking at any time. Please do not hold in perpetuity.