What, if Not Equities???

A lot of people don't like the idea of putting large sums of money into equities.
"Equities are risky" the saying goes.


Lets INVERT the situation & try to answer the question - "What then, if not equities?"

·       T he easiest option is Spend everything that you Earn. No Savings, no need to worry about where to put the savings. :-) But that's pretty much a stupid decision as you should have figured it already by now.

 ·       T he second choice is to "INVEST" in Savings/ Fixed Deposits & ensure "safety". However, there is one problem with this plan. It's not INVESTMENT, full stop.

      Buffett explains Investment in his 2011 letter as- " The transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power – after taxes have been paid on nominal gains – in the future. More succinctly, investing is forgoing consumption now in order to have the ability to consume more at a later date."

      Now since Fixed Deposits fail to meet inflation & hence are unable to provide more purchasing power to the user, they are not INVESTMENTS according to world's best investor.

  ·      The case is nearly similar for Corporate Bond Buyers. For extra 3-4% return over inflation, you     face the risk of default. You get no share in the upside, but have to pay heavily for the downside.

 ·      Next in line is GOLD. Again the same problem... Not an Invesment. Either Gold is an Insurance against things falling apart (govt printing more money/ defaulting) or its a Speculation wherein buyer is betting on price going up just because it has gone up in the past.

·      Next is REAL Estate. The good thing about this is that its productive. You buy a house, rent it out & live with the rentals. You buy a farmland, produce some goods, sell them & get Money (Purchasing Power) in return.

         However, NO Asset Class classifies itself as an Investment AT ANY PRICE. 

           If you look around currently, the rentals are maximum around 4-5% of house values. ( i.e for a property of 1 crore, the rents that you can get per year are around 5 lakhs only).

      So, to consider Real Estate as an Investment at Current Prices, you have to strongly believe that Rentals will keep going UP in the future (I am skeptical about that). Now Rentals can go Up only if Salaries go Up (else who will have the money to pay those rentals). Salaries will go Up only if Business Profits go Up (else who will have the money to pay those salaries). If Business Profits go Up, will equity prices go Down???

Have I left any major asset class?

P.S-

·      So if everything other than Equities is not touchable, where should I go?

·      Since equities are volatile, don't put the money that you need in next 5 years into equities.

·      NO Asset Class classifies itself as an Investment AT ANY PRICE applies to Equities also.So, look at Price before buying Blindly.