During April, we provided comparison charts of various asset classes since 1979-80, the year in which Sensex was formed with a base as 100.
Just to refresh your memory I want to share here the annualised return of Fixed Deposits (FD), Gold and Sensex for last 36 years:
This shows equity has given 2 times the FD returns and 1.65 times the gold returns.
This number doesn’t convey the reality.
As I’ve repeatedly told you, what matters is real returns; the returns after inflation.
Inflation during the above period was 7.73%
So the real returns look like this:
This shows equity has given a real return of 14 times the FD and 4 times the gold.
So when it comes to real return; which is how our wealth actually multiplies, FD and gold stands no chance in front of equity.
We’ve only accounted for inflation. What about taxation? FDs are taxed at the tax slab you belong to and gold at 20% of the indexed cost. But long term capital gain of equity is completely free.
So if we adjust for taxation also, FDs would not provide any real return and gold would provide significantly lesser than 2.52%. Whereas Sensex would still provide 9.2%.
You may be wondering about real estate. There is no reliable long term data for real estate. Real estate would normally provide around 3% above inflation. So what is true for gold above would more or less hold good for real estate as well.
Also one more thing. Sensex had a dividend yield of close to 2% over 36 years. That is not included in the above calculation. Equity is already a huge winner in terms of real returns and adding dividend yield would only make it returns further extra ordinary.
Go for the real wealth creator. Go for equity.