Don't invest in Gold, Real Estate and Debt.
Debt, Gold and Real Estate. Let's look at why you should not invest in these.
Investments should not be made on the basis of borrowed conviction.
But almost all of us invest in real estate, debt and gold by borrowing a conviction from our parents, friends and neighbors that these are assets to make people rich.
Let’s try to understand these products.
Debt
When you save your money with a bank, you are in fact loaning to your bank. Or when you invest in a government bond or an EPF(Employees’ Provident Fund), PPF(Public Provident Fund), you are loaning to the government. You can also loan to the corporates.
You give money to the bank, government or to the corporate, and you will be promised a guaranteed return of your money with an interest at the end of agreed time period.
But how do you actually give loan to bank, government or the corporate company?
Bank mostly borrows the money from your savings account or also from your fixed deposit.
Government takes loans from you through the bonds it issues. And corporates follow the same and takes loan in the form of bonds.
Major mutual funds companies will sell you these debt financial products under the Debt mutual fund title.
Since the debt offer you a guaranteed return(assuming that the bank, corporate and government won’t run away with your money) after a fixed time period, Debt is considerate to a stable financial product.
Chit Funds work on the same fundamentals, but it is dressed a savings.
But the interest paid(return on your investment) would be minimal, as the risk associated with your principal money is low(You will get your money back).
Debt is tax-free. While on other investments, you need to pay tax on the profits. But the main point is Debt won’t help you increase the value of your money much. Debt might not give you a 2 digit percentage return (>10%).
Avoid investing in FDs, Corporate deposits, Chit Funds and government bonds. Your money won’t appreciate in value.
So who should invest in debt?
People who retired or Anyone who needs a stable, guaranteed return on the investment, even though the return is minimal, with no tax on the investment return.
Gold
We all love the glittering metal. But gold does not appreciate as much as we think it does. It only preserves the value of our money and help us beat the inflation.
Gold will not give you interest like the debt product. It does not give you rent like your property.
You are only going to profit when you sell it at a price higher than your purchase value. And we all are sure about how often a family sells gold to make a profit.
The value of gold appreciates very slowly. It might take anywhere between 5-7 years to earn back your investment on it. A double-digit growth would require 10 years and more.
You can invest in gold to avoid any making charges or purity related concerns via the gold coins, gold bonds issued by government or gold Exchange Traded Funds. Still, the return on investment you receive will not enough to beat the inflation.
So who should be investing in gold?
None to the most part. Just enjoy wearing it. But if you still insist, buy it and won’t sell it for 10 years at least. (Fact: People with black money/illegal money buy gold and real estate, as those are the best options to buy with that money).
Real Estate
Real Estate is an obsession for most. Almost all buy it out of the fear of missing out.
Before you buy the property on loan and calculate a return on investment on a property, consider the EMI & interest paid to the bank, maintenance costs, property tax, brokerage charges and insurance.
And other things include, Land you are buying can be disputed one or no guarantee it would not be grabbed. Builders not delivering house as promised or running away with your money.
Your tenant may not pay up the rent on time, may refuse to get out when you need them too. And you are going to pay up the rent for 20-25 years.
And above all, You can’t sell it right away to make a profit.
You are better off paying the EMI amount towards a mutual fund and buy a house without a loan from the mutual fund profits.
Real Estate as an asset never worked anywhere in the world.
Put an end to the conversations like, if my grandfather did not sell his property, we would have been filthy rich.
You only would have made 12-10% return on investment after 20-30 years including all the expenses of the property.
Real Estate is a gamble, and you need to be lucky to make yourself rich on real estate.
Real Estate prices are increasing only because the prices are inflated with too much cash in the system because of the loans taken by builders and buyers.
Unless if one have black money, No one should invest in real estate.
You need property only has a house, but not as an investment.
In the words of ace investor, the big bull of India, Rakesh Jhunjhunwala on real state.
But why people invest in these assets?
People invest in these out of the fear of missing out, or only to play the status game. You can show your gold and real estate as your status. But it’s a zero-sum game. No one wins it. So it is wise not to play it at all.
Until next time,
Peace out!