Over a period of 39 years at constant purchasing power, stocks provide close to 40x returns on the initial capital, Gold offers slightly over 2x return over the same period, and FD barely manages to beat inflation.
WHY EQUITIES?
LONG TERM ASSET CLASS RETURNS IN INDIA
TIME IN THE MARKET VS TIMING THE MARKET
“Don’t try to buy at the bottom and sell at the top. It can’t be done except by liars.”
~ Bernard Baruch.
10 lacs invested throughout became 4.3 Cr, however, if someone missed the best 5 days their investment would have grown to 2.4 Cr. Since timing the top & bottom is nearly impossible, staying invested is key.
POWER OF COMPOUNDING
Allowing for compounding is the best way to create wealth across all asset classes.
The results are remarkably better for a well-managed equity portfolio.
A skillfully managed equity portfolio will have a significant alpha over other asset classes and also an index-based equity portfolio. Across a 10 year period and over a 20 year period the difference is really large.
This can be seen from the chart above.
- A debt portfolio compounding @ 6%p.a., will return 1.8x over a 10 year period and 3.2x over a 20 year period.
- An index-based equity portfolio compounding @ 15% p.a., will return 4.0x over a 10 year period and 16.4x over a 20 year period.
- A well-managed equity portfolio compounding @ 20% p.a., will return 6.2 x over a 10 year period and 38.3x over a 20 year period.
The big money is not in the buying or selling, but in the waiting.
CHARLIE MUNGER