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What is the best way of Investment

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What is the best way of Investment

Last updated: December 12 2009
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  • What is the best way of Investment

    Can any body suggest me that what is the best way to save the money during this economic crisis.

    I have 3 options in front of me.
    1.RE
    2.GOld
    3.Bank Fd

    Option 1:
    We every one know Indian RE is overpriced and may crash anytime in near future.
    option 2:
    Gold is also raising every day as RE did it in few years back.Not sure How Gold will react in the medium / long term.But there
    is always significant risk of price reduction if any one of the global government try to sell the gold.

    option 3:
    I am not an economist.so not sure about currency devaluation / inflation.Reading articles about loosing money value and inflation.
    But not sure how it affects my savings in FD,

    It will be great help if some one suggest me some good way of investment during these recessionary period
  • #2

    #2

    Re : What is the best way of Investment

    Not so simple. But there are good thumbrules ...

    Originally posted by Srinidhi View Post
    Can any body suggest me that what is the best way to save the money during this economic crisis.

    I have 3 options in front of me.
    1.RE
    2.GOld
    3.Bank Fd

    Option 1:
    We every one know Indian RE is overpriced and may crash anytime in near future.
    option 2:
    Gold is also raising every day as RE did it in few years back.Not sure How Gold will react in the medium / long term.But there
    is always significant risk of price reduction if any one of the global government try to sell the gold.

    option 3:
    I am not an economist.so not sure about currency devaluation / inflation.Reading articles about loosing money value and inflation.
    But not sure how it affects my savings in FD,

    It will be great help if some one suggest me some good way of investment during these recessionary period
    Srinidhi,

    What you have asked for covers several books and have exercised the best investment minds for millenia, but still there is no one good answer. Try these ... and make up your own plan!

    Your outlook and goals depend on your age:
    - 20s - Low income, low spend pattern, medium savings and high risk taking ability
    - 30s - Salaries increase but so do spends as familiy size increases. Risk-taking ability moderates because the years left for you to save an multiply till retirement has ow come down
    - 40s - Higher income and peak spends as children are in high school and college. Savings may remain same as in the 30s but risktaking ability declines further
    - 50s - Lots of income, low spends and high savings. Last chance to save and grow savings
    - 60s - If you have done everything right from the 20s (most people don't!), you have a home fully paid up, car, lots of savings spread across FD, Stocks, etc giving good capital appreciation as well as income

    Coming to today's situation, here's my take ...

    Gold peaked in 1980 at $850 per ounce (which, going by inflation figures would amount to over $2000 per ounce in todays dollars.

    During the high-debt, high-inflation period of 1981-2001 Gold went down from $850 to $230, its bottom in 2001. Since 2001, deflation has aken hold and you saw Gold go up from $230 to as high as $1227 last week (thats a 433% gain, which has beaten every asset including stocks and property in this period, considering that both these have come down from their peaks).

    Most people think gold has run its course. But given the really bad situation worldwide, this deflationary period is expected to go for some more years. Sometime in this period, like in 1980 the world will nearly go out of control and there will be panic. At this stage the fear angle of gold appreciation will happen. Longterm targets for gold are anywhere from $2000 to $5000 per ounce and above.

    Lastly, the mot important point about gold is this. You could put 2 kilos in your pocket and that would be worth a decent house anywhere. And anytime, anywhere Gold is a highly liquid asset which can be sold in minutes for cash. These 2 reasons make gold the most favorable asset to be invested in today. Gold is expected to correct from $1227 to around $950-1000. Best time to get in!

    Btw, from 1970 to now, Gold has given a CAGR of over 14% - which is trmendous considering the longevity of the term!!!

    Land - India is most likely to avoid the most severe part of this global contraction, but still RE assets will probably give substandard returns over the next few years (while longterm returns have been between 12-13% in general). Expect returns in the 6-8% or at best 10% returns and also considerable illiquidity when you sell. Markets for RE is also highly unregulated and there is always the risk of litigation, etc.

    FD - Intrest rates are expected to climb uncomfortably in the next few years. FDs will give safe, good returns. But always keep in in short-term FDs so that you do not lose out in interest rate swings.

    So, finally, what to do?

    Sprread your money across these assets with around 15%-25% in Gold as well as Silver (evenly), around 25%-35% in FDs and the rest in RE. Buying RE in the middle of 2010 looks to be the best bet as the world economy is likely to be its weakest around then

    All the best ...

    cheers
    Last edited by wiseman; December 11 2009, 04:57 PM.

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    • #3

      #3

      Re : What is the best way of Investment

      wiseman ,

      Thank You very much for your suggestion.Do you see any other investment other than these three(except stocks or MF related) to make money in long term

      Regards,
      Srinidhi.
      Last edited by Srinidhi; December 11 2009, 05:46 PM.

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      • #4

        #4

        Re : What is the best way of Investment

        Stock market still the best for some time to come ...

        Originally posted by Srinidhi View Post
        wiseman ,

        Thank You very much for your suggestion.Do you see any other investment other than these three(except stocks or MF related) to make money in long term

        Regards,
        Srinidhi.
        Srinidhi,

        Don't know why you are scared away from the Stock Market. After all, over the last few decades, it has given the best returns by a large margin while all the time it has provided high liquidity, regular cash flow via dividends as well as grreat capital appreciation (both dividend as well as Long term Capital gains are tax free compared to RE where rental income is taxed as well as Cap Gains!!!).

        But the waters we are entering now are treacherous and will be for some years to come. This brings on great risk in the short/medium term if you buy whn markets are very high (like now), but it also brings you phenomenal gains if you buy when markets have crashed like in Nov 2008.

        I advise you to put around 10%-15% (or even upto 20%) of your money into Stocks in the following manner ...

        Wait for our markets to crash significantly (I personally expect Sensx of 9500 - 10500 in 2010) and there is total fear and disinterest in the markets by investors!

        Select Stocks in safe sectors (Pharma, Large s/w and Bluechips, maybe even some sound Finance companies as they provide great dividend yields at such lows) and buy into around 8-12 such stocks spreading it evenly. See the results after an year or two and you will get at least 5% - 8% yield via dividends (tax free so it equates to 8%-12% from FD aprox) and at least 100% Cap Gain or more (last time some stocks gave 500% gains (HCL Tech, Sesa Goa, etc).

        Try it and trust me. I have been doing it for over 25 years now and returns have always been phenomenal. But don't get into buying and selling every other day and don't buy the tons of junk paper in the markets.

        cheers

        Comment

        • #5

          #5

          Re : What is the best way of Investment

          Thanks Again

          wiseman ,

          I agree with you.Thanks again for your valuable suggestions.I am one of the fan for your posts .Sorry to bother you again.Can you please suggest(or teach) us some tricks / tips to understand the stock market.Is there any other proper way(or books,website etc) to learn about stock market.
          Thanks
          Srinidhi.
          Last edited by Srinidhi; December 12 2009, 12:36 AM.

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