In any game, its good to understand the condition of the playground before you play the match. In life too. There are may games that we need to play and money making is an important game that we should be playing all through our life. If we take Cricket as an analogy, money making is like a test game. We need to know when to play defensive, when to go for it and what is the pitch condition. In this game, let’s see what are the different pitch conditions and the characteristics of each.

I have written a detailed post on how to plan for your long term goals and how we can achieve it with a help of SIP in mutual funds here. Mutual fund is like someone playing on behalf of you. If you want to be a player in the money game, then we need to first understand different asset classes first.

Broadly asset classes include Equity(India), Equity(US), Gold, Real Estate, Debt. Majority of us, have their investments in Real estate, Gold and Debt and slowly people are starting to invest in the equities. One main reason for this is, Real estate and Gold are real assets which can be seen physically and their values tend to not fluctuate too much. We feel safe investing in these assets. But can we all do only this ? We need to understand its effect over long term.

If you had invested X amount of money 20 years back, then this is how approximate the results are.

Asset	Multiples
Indian Equity	22X
US Equity	11X
Gold	9X
Real Estate	5X
Debt	4X

While no one can predict the future, its good to follow on the footprint of what history has taught. We don’t want to end up investing majority of our money only in the lower segments of the table and the other way too.

How are we knocked out of the game ?

Equity markets witness 10% to 20% corrections in most of the year and that is where as an investor, we should stay strong like sailing a boat on a rough sea. We should remember that these are temporary and it is there to wash out the weak hands on the table. But as time for our goals are nearing, we have to move to safer assets.

There are times equities have corrected even 30 to 60% in the history but these are once in a decade events. But like how tennis ball bounces back when its pushed down, markets have bounced back in the subsequent years. Also every year, there are always some events like war, financial crisis, political moves, etc. which ends up being a reason for not participating in the game. While these keep happening, market tends to keep climbing the ladder.

If we tend to be very smart and predict that market is going to fall in next few months and cash out your investments and you missed few best days of the market, then its going to significantly impact your returns. Over a long term of 10 to 15 years, Equity provides mostly Inflation+(4 to 6)% of returns but to achieve this we have to stay strong during market falls.

Hey sorry, am not a person who can tolerate seeing my money going down. What shall I do ? Don’t worry, Debt asset class is for your rescue. Is it bad to be a lover of Debt asset class ? No, definitely not. But when you should be a lover and how much you should love is very important.

How to play the Debt asset class ?

Debts are nothing but investing our money in Banks, Bonds, Liquid mutual funds where they give a fixed returns based on the time of investing. Some time the returns varies on the Repo rates that RBI decides.

These returns on a long run can only cover the inflation but not much beyond that. It can be just one or 2 percent above the inflation. I would prefer these funds forming sum percentage of your portfolio and increase this over time. As you age, we should be reducing the equity exposure.

Let see how Gold has performed on a long run. Will gold always glitters ?

There are multiple ways of investing in Gold. I feel I can write a separate post about it. But if you are buying physical gold as an investment, then its not the best way but it has some pros as well. We all see in our families how our mom and wife are excited when we go for a gold purchase. Its like precious gifts to them. While no one can give a number to that happiness, I strongly feel your initial investment in gold can be a gift to your mom, wife, sister. Why not dad 🙂 Once you are bored with that, then we can venture out to other digital way of investing in gold. Ok, lets see how the gold has performed in long run.

We could see Gold price used to consolidate multiple years. If you see the chart, you have to sit through multiple years to see some move happening in the asset. Some times these can be even 10 years. There are two component to gold returns. One from the real asset and the other from the USD-INR currency moves. In the past 10 to 15 years, Gold as an asset has beaten Inflation + 2 to 4%.

Next is our famous “Real Estate” asset class

This is one asset which need good amount of money to start your investment. Anything that is difficult to start should have a good returns rite ? Yes, but is it always the case ?

Lets first understand that its generally not easy to do math with real estate returns since there are a lot of factors like location, type of real estate, etc. Here we are going to consider only the numbers that NHB gave for residential real estate.

You would notice that real estate also works in a cycle. You should choose the right time to invest during the cycle. I feel the real estate growth in the last few years are negligible and a new cycle has started from 2022. If incase, you are planning to invest in any real estate with the help of a home loan and you are in higher tax slab, do read this.

Real estate over a long term has beaten inflation + 2-4% returns. If you have entered at the right time, then it will be even more better. Now that we have understood multiple asset classes, how to pick when is the ultimate answer that everyone is looking for. But there is no answer to that.

Best asset class in one year could be the worst in the next year and vice versa. So our portfolio should be a bag of all these assets and our time period should decide the percentage of allocation to these. I hope this article would have given a good picture about the different asset classes and how each of these performed over time. Thanks to Funds India, for giving the stats in their wealth conversation. If you want to read more on the numbers and charts, you can get it from here.

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