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Friday, November 18, 2016

In the Wonderland of Investment (Part I)

While we all agree to seize the moment, live the moment and be happy, it should not be construed to spend whatever you have without giving a thought for tomorrow! Many messages float on social media advising you to spend money on your well-being, don’t worry about the future or don’t save too much (lest your kids would become lazy/dependent on you, etc.).  While I do agree with the first part of the sentence, I would not agree with the latter part.  Allow me to explain.

1.    We (assuming most of my readers are living in India) are living in a country where the inflation rate is 8% to 9%.  Those of you who are good in Mathematics or in MS-Excel, just try to find out how much your monthly expenses would be in year 2046 (assume your current monthly expenses as Rs. 100,000 – all inclusive – Assume inflation rate a modest 8%) . Most of you would get a shock of your life when you see that number..

2.    Thanks to the overall rise in the standard of living, increased awareness about health/fitness/nutrition, the average life expectancy has increased in India (It was 66 yr. in 2012, it could be 70 now & soon we could be catching up with the Developed countries where it is 80+)

3.    We are also witnessing a disturbing rise in air pollution, water pollution, food contamination which negate the earlier point slightly. The mortality rate will not increase much but the risk of various respiratory, gastro-intestinal diseases increases exponentially, expecting a big hole in the pocket on account of hospitalization, medical expenses.  (Also note –  Most of the health insurance plans cover only hospitalization & not OPD charges – which are substantial and which most of us incur frequently)

4.    Work environment has changed a lot. Increased competition, more travel, working at odd hours, fast food / alcohol consumption & lack of stress management has given invite to more life-style diseases. Many are getting burnt out in 30s and considering to leave the rat race. Those in their late 40s are struggling to survive in the ever-changing IT industry (or even engineering industry) .  While many are opting for voluntary retirement, there are many cases of forced ones too. 

5.    Most of us would be living in ‘empty nest’ since kids would be living either abroad or in metro cities, necessitating need of a driver, maid (and or a nurse in some cases). These expenses need to be planned. Add this to the number you got in point 1)

6.    The well-heeled can also add overseas vacations

Now tell me, would you want to spend money today (as if there was no tomorrow and find yourself in awkward situation in old age) OR would you want to spend it discreetly? More importantly, wouldn’t you want to invest your money wisely so that the savings outgrow at least the inflation rate and enables you to maintain your life style?  So you could be on the verge of graduation and looking for the first job or you could be 40s, it makes sense to invest and …invest wisely!

To be honest, to invest or not to invest is not a question at all. 

Rather it should be, how to invest and which we will cover in part II.