This is going to be a long post, please bear!
For anyone looking at property as an investment, when you buy property read through all these as associated expenses with the property (https://www.am22tech.com/break-up-of-apartment-cost-india/). So basically in India you’re paying an extra 20% and in the US an extra 3% (https://www.globalpropertyguide.com/North-America/United-States/Buying-Guide) to basically buy something that you think is going to give you great safe returns. Let’s consider a basic FD/CD which gives you a 1% real rate of return. For India, even that would be much better than the 1-2% property gives you after subtracting the maintenance and property taxes. People in the developed world have understood this and don’t hoard their savings in property and soon this wave will come to India. Currently in India you have to pay more than a 20% premium on ownership and find a constant cashflow through rentals, along with maintaining. Why would you not just put the money in an SiP, debt or balanced fund and let it grow without worrying about added stress.
One other area where people believe they stand to make tons of money. (https://www.bullionvault.com/gold-price-chart.do). The chart in this link shows you that for the last 10 years gold went up just about close to 50%, in the last 8 years it was only about 10%. Long considered a safe haven, it’s performance leaves more to be desired. In 10 years if the return is only 50% it’s not even 4% a year (allowing for compounding). Stocks such as TITAN have returned almost 20 times the investment if you were so bullish on gold and believed the gold story.
The Heart of the Matter
From all the analysis above it looks like property and gold aren’t as lucrative as everybody thinks it is. Let’s understand a few basics. Property, gold and other traditional investments are commodities. Their prices are governed by pure supply and demand and there’s no business value in these commodities. Buying a fundamentally sound stock is a better play in these sectors than buying the commodity itself. The key aspect to understand here is you have to separate an investment from a business. If you keep trading gold or other metals and flip houses, this becomes a business, it’s no longer an investment. If you time the market then it’s a business combined with speculation. So on an average how can you generate higher returns than just these commodities if you want to purely invest and not trade.
These represent ownership of some of the top names that rule the roost.Imagine being a partner in Apple (The world’s most valuable company) and having got in like 25 years ago. It would have given you at-least a 100X return. Or even so Netflix. In India, let’s take the example of MRF or HCL technologies. These are pure wealth creation instruments. Companies are large entities with great teams that know exactly how to add value. Invest in one right company, that’s right, one right entry at the right time can set you up for life. Companies have large teams, they have brand value and a lot of them have a moat (a competitive advantage setting them apart). This can often lead to 20-30%+ growth in a single year for much as 10-15 years giving the early investor a great return on his/her capital. You don’t even need a whole lot of money, just a good time horizon. Start early and even Rs 10000 a month, $200 a month invested in a good mutual fund can begin the process of wealth creation. (https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php) This website can help you plan. Start early and reap rich rewards, investing as wisely as possible.