Dim lights for secure future
The festive season has a close association with money. Some get bonuses and plan for investments after they have spent what they have to. Some borrow to meet habitual festive spending. For us Indians, often, the festive season either helps us to build wealth or force us to spend the next one year in repaying the money spent.
This festive season is perhaps cheerful only for those who put money in to gold last year. All other investments seem to be under water and we brave it by either continuing our SIPs or by some other concept of ‘value averaging’.
Thinking a year ahead from now, here are some thoughts on where to put money. If one thinks that the stock markets will help me give a great return, then the only hope is to pray fervently. The fundamentals do not warrant a great return from equity over the next 12 months. Inflation is something we will have to live with it should, one hopes, be within 10 per cent.
So, if I have to put away some of my bonus for spending next year and need to beat inflation, I have to be looking for a 10 per cent plus return.
One could get 10 per cent returns by putting money in to fixed deposits or bonds; but there will be tax on the interest inco-me. So, even with 12 per cent returns, the post-tax returns would be below 8.5 per cent for one year. As far as liquid funds are concerned, one could perhaps get around eight percent; if held for a year, it would still lag inflation. So, should one fall back on tradition and buy gold (ETF)?
Now, Indian investors have learnt to live with gold as an ‘investment’ and have no qualms in selling it. Here the ETF route helps because one does not have to hide the gold coin, worry about its safety and then refuse to sell it. Yes, with the world in turmoil, gold could give returns to beat price ill.
Given the current price of gold, anyone buying this precious metal will have to bank on the dollar-rupee equation as well as the global economy to be in poor shape. Looking at all factors, there should be reasonable hope on gold. Should you put all the money? No. Prudence suggest that one should not put more than half the pot in gold ETF. The other half could go to a bond or FD. While choosing the bond, look at a minimum rating of AA from either CRISIL or ICRA and a corporate name that is familiar.
Another big call to take between the festive seasons is whether to buy a home now or later. Housing prices are threatening to fall, but are not actually falling. On the other hand, the EMI’s are shooting up because inte-rest rates are going up. Maybe one should wait till one more year is over.
What about durables. Unless you are in a hurry, it may be better to park them in FD and buy those things at a lower price next year. Surely, white goods firms will feel the pinch of a slowdown. So, this festive season, I at least plan to dim my lights a bit, so that I can continue to enjoy my festivities next season.
The writer is an independent investment analyst.
Post new comment