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Rs 100 earned 30 years ago will buy
goods worth only Rs 14 today
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Two situations that befuddle a financial planner
are short working years and long retirements.
Priya Sunder, TNN | May 13, 2014, 10.49AM IST
As a financial planning professional servicing 3,000 customers,
I have found a few things common in many of my customers'
wish lists: Almost everyone wants to be fabulously rich, clear of
all debt and retire as early as possible.
Two situations that befuddle a financial planner are short
working years and long retirements. On an average, our
lifespan is increasing by one year every three years. The
previous generation would work till 60 and live till 75, with
only 15 years of retirement to fund. The present generation
would like to retire at 40. No problem with such a desire,
except that if they live till 90, then they have a 50-year
retirement to fund on the basis of 15 years of earnings. Hence, it becomes critical to ensure that
assets grow that much faster to sustain their current lifestyle for the rest of their lives.
How do we stretch the rupee so that people can maintain the same or better lifestyle after
retirement? We have various instruments to choose from. Under the debt option, we have fixed
deposits, debt mutual funds, corporate bonds, Public Provident Fund (PPF), National Savings
Certificates (NSCs) and so on. Gold is another form of debt because of the similar tax treatment
as to debt instruments as well as returns.
Real estate has the potential to offer returns that beat inflation, but the associated frictional costs
and the hassles of managing investment properties can prove to be a deterrent for many. Under
equities, we have direct stocks, equity mutual funds, and various structured products whose
underlying assets are stocks.
In general, conventional debt investments such as fixed deposits have not offered returns that
have beaten inflation. On an average, the real returns from these instruments are negative. We
are living in an age where annual inflation rate is averaging 8-10%. Going by the historical
inflation rate, a Rs 100 earned 30 years ago will buy you groceries worth Rs 14 today.
Some customers tell me that they are satisfied with the 9% interest on their fixed deposits. But
have they considered that a 9% interest will yield only a little over 6% post-tax (assuming a 30%
tax bracket)? In the same period, inflation in our country is hovering at 10%, reducing the real
return on their fixed deposits to a negative 4%. This means that people are becoming poorer every
year without realizing it.
Smart and effective financial planning ensures that the sum total of all your investments deliver
post-tax returns that beat inflation. Real return, or actual return minus inflation, is the number to
pay attention to, and not the nominal return. It is also critical to have the right balance between
equity and bonds in your portfolio if you are to beat inflation comfortably.
As a general rule, your age is a good guideline for the proportion of bonds you should hold. If you
are 30, then have 30% bonds and 70% in equity. Bonds bring safety to your portfolio. Equity is
the growth engine of your portfolio, and over a longer time horizon should offer you real
returns that fight inflation aggressively. You require equity in your portfolio even after retirement
if you are to prevent inflation from gnawing into your portfolio returns.
There is no question that equity is a volatile instrument. But not taking the risk associated with
investing in equity is one of the biggest risks to your financial independence. While investing in
equity, mutual funds are a great way to enjoy the diversification of a well-managed portfolio while
earning good returns. Gains from equity and equity mutual funds are exempt from tax after a
year. Added to this, if you invest in equity mutual funds via SIPs and thereby not try to time the
market, compounding will ensure that your dreams of early retirement, or becoming a millionaire
may well come true!
The writer is director, PeakAlpha Investment Services
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29-05-2014 http://timesofindia.indiatimes.com/business/india-business/Rs-100-earned-30-years-a...
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Page 2 of 9 Rs 100 earned 30 years ago will buy goods worth only Rs 14 today - The Times of India
29-05-2014 http://timesofindia.indiatimes.com/business/india-business/Rs-100-earned-30-years-a...
Nice article, showing the shockingly high price indexing!
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This is because of our corrupt thick skin politicians, time to punish them life
imprisonment for their wrong did
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See milk prices as a example.
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Retire at 40? What nonsense.
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Thanks to our politician
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inflation is on the rise...
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Please suggest some mfs via sip which can give best results.
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Nice article.
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This is true that we are getting poorer day by day due to difference in inflation
and rate of interest we earn...Govt should think about it and bring some kind
of proposal to secure the citizen's retired life...I believe upcoming govt will be
the stable one and will work towards citizen's financial security..
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Thanks to Congress led Govt. Inflation it is.
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16 days ago
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Page 3 of 9 Rs 100 earned 30 years ago will buy goods worth only Rs 14 today - The Times of India
29-05-2014 http://timesofindia.indiatimes.com/business/india-business/Rs-100-earned-30-years-a...
It will be wise to have Superannuation Scheme similar to Singapore or
Australia where 9% of ur gross salary is deposited into a fund that invest into
various markets or instruments and one can only withdraw from the fund
upon retirement.
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nice advice but the final verdict is, cannot achieve that for common people
like us
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Well balanced article. Thank you. Good value advice.
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Yes and add 10 years of UPA rule to be included in these 30 years.
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Page 4 of 9 Rs 100 earned 30 years ago will buy goods worth only Rs 14 today - The Times of India
29-05-2014 http://timesofindia.indiatimes.com/business/india-business/Rs-100-earned-30-years-a...
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TIMES POINTS EARNED
Page 5 of 9 Rs 100 earned 30 years ago will buy goods worth only Rs 14 today - The Times of India
29-05-2014 http://timesofindia.indiatimes.com/business/india-business/Rs-100-earned-30-years-a...
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TIMES POINTS EARNED
Page 6 of 9 Rs 100 earned 30 years ago will buy goods worth only Rs 14 today - The Times of India
29-05-2014 http://timesofindia.indiatimes.com/business/india-business/Rs-100-earned-30-years-a...
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TIMES POINTS EARNED
Page 7 of 9 Rs 100 earned 30 years ago will buy goods worth only Rs 14 today - The Times of India
29-05-2014 http://timesofindia.indiatimes.com/business/india-business/Rs-100-earned-30-years-a...
2
TIMES POINTS EARNED
Page 8 of 9 Rs 100 earned 30 years ago will buy goods worth only Rs 14 today - The Times of India
29-05-2014 http://timesofindia.indiatimes.com/business/india-business/Rs-100-earned-30-years-a...
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TIMES POINTS EARNED
Page 9 of 9 Rs 100 earned 30 years ago will buy goods worth only Rs 14 today - The Times of India
29-05-2014 http://timesofindia.indiatimes.com/business/india-business/Rs-100-earned-30-years-a...