“Inflation is eating your money. If you are keeping your money in Savings and Fixed Deposits, you are doing great injustice to yourself.”
I see many LinkedIn users saying this in times of low interest rates on FDs compared to eye-popping returns on other asset classes like equity and cryptocurrencies.
Is it wrong to keep money in FDs? Definitely not!
Keeping money in FDs provides you with the safety of principal along with quick liquidity that no other investment can guarantee.
Then what one should do to protect one’s purchasing power i.e. getting returns equal to or higher than the inflation rate of ~8%?
The simple solution is asset allocation. The investment in equity or any other risky asset class should not be a 0 or 1 game – get out or get in 100%.
Depending upon your risk appetite and market levels, you should accordingly maintain equity exposure in your portfolio.
For example, if you have a high-risk appetite and a long investment horizon. You can choose to invest in equity in the range of 30-80% of your overall portfolio and remaining in Debt (FDs, Debt Mutual Funds, Bonds, etc.) and Gold (ETFs, Funds, SGBs, etc.). 35% when markets are extremely expensive and 80% when they are extremely cheap as per the historical valuation standards.
When you maintain the discipline of asset allocation, you not just beat inflation but get fantastic returns without taking excessive risks.
However, unlike other activities where you get quick feedback on your actions to take corrective steps, the outcomes of investment decisions take time. It’s similar to how daily exercise produces results over time.
Discipline in investments is the most difficult to follow due to greed & fear, lack of knowledge, and a late feedback cycle. In this case, like a health coach, an investment coach can be of great help.
After all, among other things, you need both health and wealth to live a more fulfilling & satisfying life. Why not give them the maximum importance?
Originally posted on LinkedIn: www.linkedin.com/sumitduseja
Truemind Capital is a SEBI Registered Investment Management & Personal Finance Advisory platform. You can write to us at connect@truemindcapital.com or call us at 9999505324.
