One of the most misunderstood asset classes by common people is equity and equity related investing; the tags such as volatile, fluctuating, uncertain, risky etc. are common for equity. One tagline which supersedes these terminologies is “opportunity” because despite being volatile, uncertain and risky equity is a place of opportunities.
Not being able to understand or manage equities doesn’t mean that it is risky; all we need is filling up the blanks. Knowledge is the gap between risk and opportunity which needs to be filled. If equity market was risky how one can explain the investment value of Infosys stock which is Rs.9.50 crore on an investment of Rs.9500 between 1993 and 2020; the annual return on investment is about 40%.
Equity as an asset class was designed to offer wealth creation across the strata of people without the discrimination of gender or demography. Anyone can invest and seek wealth creating opportunities.
Each asset has different capabilities which can be observed through this statistics: between 1995 and 2020 (25 years) the value of Rs.100 across these aspects are recorded like this: Value of Rs.100 would have become Rs.19 (annual inflation at 7%); Value of fixed deposit would have become Rs.684 (at 8% annual growth); Value of gold would have become Rs.1083 (at 10% annual growth); Value of Sensex as an index would have become Rs.1213 (at 10.50% annual growth); investing in bluechip stocks the value would have become Rs.9500 (at 20% annual growth) and investing in a diversified equity mutual fund the value would have become Rs.6000 (at 17.50% annual growth).
The differences can be clearly observed from the valuations across all asset classes. At the same time investing in equity such as individual stocks is not easy because we have to identify good stocks and also buy at right prices; it definitely requires learning about fundamental analysis. Alternate to investing directly in stocks is taking the mutual fund route, which too requires understanding of how to choose the right funds. So, knowledge is the key.
For long term investing Sterlite Technologies can be considered which is trading at Rs.164; the company is into telecom related infrastructure and is a well-managed company. The key financial parameters looks good expect for the high debt to equity ratio. The operating profit margins, return on equity and return on capital employed are very robust.Read More
What is Financial Freedom? Is it not a state in life we all long for or expect, where money or the medium needed to transact on a daily basis to achieve a certain quality of life, is available to us on demand and more importantly we have control over that medium in our lives based on circumstance, need and desire. A lot of words to express a simple desire we all have which is – TO LIVE LIFE ON OUR TERMS, right!
The commodity we know as money is a medium that enables the exchange of products & services between the two parties but the key point is that it’s only an instrument of paper where a central authority (the government) acts as the guarantor for the medium of the transaction. True intrinsic/financial value comes from being financially aware, competent and how one applies that awareness to their daily life in order to create income generating life skills/assets that enable the process of achieving financial freedom.
In my experience it comes down to three simple actions – BEING AWARE (ignorance is not an excuse), BEING DISCIPLINED (no deviation from the plan & goals) and BEING CONSISTENT (giving in to the “nice to have’s” is a no-no). The actions are of course to be applied for the duration it takes for you to achieve your goals and what may seem to be pain (giving up on things) at the outset, is the investment one makes towards their financial freedom.
Financial Freedom becomes a myth owing to the fact that a majority of us who are not able to achieve it or get frustrated with the journey, land up blaming it on all the wrong excuses for it not becoming a reality.
Financial Freedom in some ways has also become only a # topic for the millennial generation which in my opinion is due to the lack of a holistic understanding of the process of money management & discipline i.e. awareness of all financial & investment options available, role of and how the capital markets work, role of and how the banking system works and how do basic macro economic changes impacts one’s daily life. This leads to more paranoia and confusion becoming the norm and that becomes the trending sentiment owing to social media.
Financial Freedom is and should be every person’s life imperative – A BASIC NECESSITY. Money needs to work for us not the other way around and the first step towards that is to ensure that one has the right mindset when it comes to thinking about money, to truly understand what it is and how it works. In my view, financial literacy and education should be an integral part of any education system across the world, right from grade school in order to prepare the next generation to be financially competent. In conclusion, money is the only true tangible nexus connecting all of us, irrespective of who we are, where we are located, what we purse as a career option or want to achieve in our lives. Given this ubiquity, part of the responsibility lies with each one of us to do what is needed to become financially aware in order to enable that goal of FINANCIAL FREEDOM.Read More