The money we earn could
be used to buy things that we need today. Nonetheless, we chose to invest, by
reasoning that we would rather use this purchasing power some other time in the
future. In this manner, the money that
we saved will become our capital. Since that we exercised the option of
saving for future, we should be earning enough on the saved capital, to consume
more than what we intended to consume now.
Invested capital is
essentially trying to protect not your currency notes or bank balance, but the
ability of money to buy something for you. Basically, you are trying to protect
the purchasing power of your money in the name of capital protection.
What is the biggest
risk to capital?
It is the rise in prices, also referred to as
inflation. When we say protection of capital, we presume our saving is
growing at least in line with the inflation. If the rate of growth (investment
returns) of the saved money (capital) is less than the increase in household
expenses, then we are simply destroying
the capital.
Which investment
option surely and certainly destroys our capital?
Well, the first
choice of Indian investors is a
financial asset called fixed deposits (FDs).
Simple illustration-
Suppose you have Rs 1 lakh and you want to spend this money on buying a TV or a
refrigerator or on a holiday package. Instead of splurging on these items, you
invest the money in fixed deposits for a period of three years.
After three years,
your capital has grown from Rs 1 lakh to say Rs 1.21 lakh (annual growth of 7 %).
But during the same time period, prices of these three products/services went
up by 10 % per year and these now cost Rs 1.30 lakh.
In short, FDs have destroyed your capital. This illustration is
from a short-term perspective.
How safe is your
Bank FD as a retirement corpus?
Now, imagine the
impact of the same thing over your life span. Assume you start earning at the
age of 30 Years; and regularly save and invest 33% of your income in the safe
heaven Bank FD. The return you generate would at max keep in line with inflation,
so logically speaking your two years of saving would take care of 1 year of
expenses; so assume you work till 60 years (so you work for 30 years) and when
you retire your safe heaven can at max
take care of your expenses for 15 years and you will run out of your retirement
fund.
Just introspect,
·
Have you started saving from the age of 30
·
Have you kept aside at least 25% of your income as
savings since 30 years
·
are you intending to work till 60 and is your job
secured till 60 Years
·
Have you deployed your savings to create capital
If your answer is
yes for all the above highlighted points, then you can be sure you would retire
comfortably; otherwise you need to seriously think of a proper plan.
Bank FD’s are like
banyan tree; As banyan tree does not allow any vegetation to thrive below it,
FD’s will not allow your capital to grow. So think before investing.
Retirement
planning is no more an option, it’s a necessity.For any Investment Planning feel free to get in touch with me on 0965-65708812 /91-9845366753
