July 20, 2015

The same rules apply

The best way to analyse any asset class is to look at the long term return for it

For example
Fixed income : inflation +/- 1%
Gold : Inflation + 1.5%
Real estate : Inflation + 3-4% (or more ?)
Equities : inflation + 6-7%

Now based on timing and in some cases, asset specific skills can help you beat these returns, but over the long run no matter how much you love the asset class, these returns do hold.

In 2011-2012, even my mother who only wishes the best for her son, was encouraging me to look at Gold and real estate. When people who truly love you start recommending an asset class , for your good, that’s a good sign of a bubble.

In this case, I bought a little gold for my mother and wife and they were quite happy about it. Now that was a decent investment – one cannot measure happiness :)

Stocks discussed in this post are for educational purpose only and not recommendations to buy or sell. Please contact a certified investment adviser for your investment decisions. Please read disclaimer towards the end of blog.


Dev Ashish said...

I can totally relate to this Rohit. Family members requesting (read pushing) us to buy gold and similar asset classes. Sometimes, the rational part of our investment personality goes out of the window, when we are confronted by our own people. :-)

Really loved your lines "When people who truly love you start recommending an asset class , for your good, that’s a good sign of a bubble.'

Lucky said...

It might be a hindsight bias now, but I was very sure in Jan 2008 that equity had gone way too up and gold was virtually stagnant. I also knew that risk in the system drives equities down and pushes gold up. Did I act? No. Possibly because I was busy with more important things in life or (because?) possibly because I was not invested too much into equities anyway.

However, on real estate, I can confirm that my returns in the last 10 years have been close to 8-9% + rental yield of ~3-4% (getting lower). And I have been paying SBI @9.5-10.5% all along. So much so for the great real-estate returns. Would have retired by now if I had invested only the down payment and EMIs till 2008 in the big crash :-)

Rohit Chauhan said...

Hi dev ashish
its easy to say no to salespeople ..what do you do with people who are close and important to you :). well as far as gold is concerned, i look at it as an expense and not asset. once i buy a piece of jewelery, i am not going to sell it anyway ..so it cannot be an asset.

finally ofcourse one leaves rationality behind for love anyway. otherwise no one would have kids :)


Rohit Chauhan said...

Hi lucky
a lot of things look obvious in hindsight. over 10-15 years however most major asset classes have a long term returns trends. an investor ignores this at his or her peril. on top of that trying to time, is anyway a further waste of time (per my view anyway)


Anonymous said...

Hi Rohit,

This was a three leg rally...QE,Earning upgrades,and near zero int rates........QE gone,earning upgrades are no where to be seen and Fed int rates can rise in fy15-16......Japan launched QE,then EU was forced to do the same....the entire tamasha on shangai composite is only to foce chinese govt to launch a QE,then in the final leg commodity will rally.Gold will be an excellent buy near to 1000USD can be held on till NASA develops the tech to bring that titanium rock to earth which just whizzed past us.

Anurag Awasthi