The coronavirus lockdown has prompted all of us to sit back in our homes, reflect and catch up (digitally) with family and friends.
In my various interactions with youngsters, particularly on matters of investing, I recently came to a conclusion. The younger generation, or millennials as they are called, may not find it as easy to make handsome returns on their investments, as, say, the generation before.
I believe that this there-will-be-no-more-free-lunches rule applies across asset class. Worse, most youngsters may not know this.
Here’s the historical track record for various asset classes and what may lie in store for them.
Buying your own house has always been a dream for most, particularly for Indians. In the early 2000s, you could buy a house in most parts of Mumbai and see the price go up 8x or more over the next decade.
Returns have now stagnated over the past five years and continue to remain subdued in the foreseeable future.
So what gave?
The earlier generation enjoyed solid returns on properties, the real estate sector now faces a heady mix of high prices, unsold inventory and stagnating incomes.
A straight investment decision previously would be to buy a house, give it out on rent, which would shave off the EMI and enjoy the capital appreciation. Both with both rents and prices not going up in a hurry, that play also doesn't look that smart anymore.
Look up interest rates that fixed deposits offer and you will see something in the ballpark of 6 percent. The rate on the public provident fund stands at a slightly better 7.1 percent.
But did you know that FD, EPF and PPF rates used to be in double digits in the 2000s? Apply the rule of 72 to a return of 12 percent (72/12) and you would double your investments in six years without any risk.
Sure, inflation tended to be somewhat high back then, meaning that it would eat into some of your high returns but even adjusted for inflation, you could have come out ahead.
But it’s a safe call to make that double-digit FD returns are a thing of the past.
The favourite asset class of most Indian women has shown how prudent their decision has been. Over the past 20 years, the yellow metal has gone up more 10x, from under Rs 4,000 per 10 grams to over Rs 40,000.
In between, there were years gold was off-colour but on the whole, an annualized growth rate of 11 percent sounds pretty impressive.
Could gold again rise by that much over the next 20 years? That would be a bold call.
While markets have remained volatile often, as is their nature, an investment in the index would have generated decent returns over the past 20 years.
Since I track stock markets closely, what is the outlook for equities, you ask? Personally, I am optimistic on the stock market and believe they will generate handsome returns over the next 10 years.
But as stated above, it would help if investors kept their expectations from each of the asset classes above tempered.
A well-diversified portfolio should comprise while also conserving a small amount of cash is the most appropriate method.
What’s more important? Be modest in your spending habits and you will have more to invest, which would improve your chances of having a comfortable retirement.