If I ask the wealthy Indian public, “dear people, how many of you have investments in equity either directly or through mutual fund?” I am quite confident that 90% of them will say NO. If I further tell them that they don’t invest in equities due to fear of loss, I would be right again. People hate losing money so they run away from equities.
I also hate losing money therefore I invest in equities. Oops, what a contradiction!!! Why such difference in attitude towards money and investments? This is because their definition of loss and my definition of loss is different. Let’s find out how is that the case.
Their definition of Loss:
If they invest ₹100 and it becomes ₹95, there is a loss of ₹5 for them. Loss occurs for them when the value of your Capital goes down below the original investment. Therefore they primarily invest in Capital protected Fixed Deposits and Insurance.
My definition of Loss:
If my original investment of ₹100 become 105 after 1 year I still suffer a loss of ₹5. You may wonder how??? Let me explain. My expense budget has gone up by 10% during last 1 year. So today I am spending ₹110 for goods and services which were available to me for ₹100 a year ago. So my loss occurs when the value of my Capital does not match the rise in my living cost due to inflation.
Now let’s move to second part. Why do people lose money in equities.
1. Selection of bad stocks
2. Bad markets
We can control the first point mentioned above by investing through a good diversified equity mutual fund. Bad markets is something we cannot control but we can stay invested without being affected by volatility.
Please forget the term “Guaranteed Returns”. If you invest or deposit in products which give guaranteed returns I can give you one guarantee that you will not beat inflation and in turn lose your purchasing power.
Invest Right and Sit Tight ! Happy Investing !