You Need to Start Investing - Right NOW!

Welcome to the first of my posts on beginning investing. If you’re reading this with any degree of interest, it’s probably because:

1. You have a decent amount of money in your savings account and you know you need to do something with it but you’re just too busy and don’t have time for it just now. You’ll get to doing something next weekend. [You’ve been saying that for six years now]
2. You have a friend who gives you hot stock market tips, several of which have shot through the roof while you stood by and watched him laugh all the way to the bank. You’d like to take a punt on the stock market but you’re not sure whether to risk it.
   [The right, though fairly useless, answer at this point is – it depends. But you’ll be able to answer it before we’re through]
3. You have all the good things in life, but no savings to speak of even though you earn quite a decent sum (Come to think of it, you wonder where your salary goes every month…). But there’s that new surround system on the market you need to buy tomorrow, after which you’ll be pretty much broke so you’ll read this now and promise to get started next month
   [You’re in more trouble than you can imagine, my friend. Forget the surround system and start focusing on saving something RIGHT NOW]
4. You earn a reasonable, though not high, salary and you’re wondering whether it is even possible to get rich with what you get [Given time and patience, yes, you can become pretty well off]
5. You want to start out, but you don’t know enough and need some step-by-step directions. [Well, I’ll try my best and hope you can make use of what I have to say]

While the circumstances of each of the above types of people might be different, what is common to all is inertia and / or inactivity – and yes, a general interest in the subject. However, the only 'interest' of any importance in terms of money is the type you get from your investments. Plain enthusiasm and intellectual pontification will get you nowhere. You must get started – TODAY!

And here’s why:

• Bank savings accounts and fixed deposits earn between 3-6%, on an average, a rate that is, at best, keeping up with inflation (inflation is the rate at which prices in general are rising every year). This means that, over time, you are getting POORER. Not only are you not moving forward, you are actually moving BACKWARD and, when the time comes for you to retire, you will realize that you cannot. You will have to continue working your whole life to support yourself and your family
• Even if you are looking at the quantum of money you will have, rather than purchasing power (though that’s no use, really, due to the fact that prices are also rising due to inflation and a lakh ten years later will not be worth as much as a lakh today), please do note that 3% interest in savings accounts will imply your money will double in only about 24 years (I am not joking). Do you really want to wait that long to see the Rs. 20,000 you have in your savings account become Rs. 40,000? Especially when it will buy probably the equivalent of Rs. 10,000?
• Interest rates on government-backed investments like PF are falling and will continue to do so till they reach market rates of interest i.e. around the same levels as RBI bonds. This is because the government cannot continue to pay out artificially high rates of interest while earning less than it gives you. Such a system cannot be sustained indefinitely. If you doubt this, I’d like to draw your attention to National Savings Certificates and Kisan Vikas Patra that used to pay out around 14% in the ‘90s (doubling your money every five years) whereas they are now around 6.5% (doubling your money only in around 11 years). Even the PF rate has come down to around 8% and will continue to decline despite the opposition of various parties in the Indian government
• Prices of real estate are going up to stratospheric levels. Chennai, the city whose property prices I am most familiar with, has seen price rises of around 30-100% per year in the past 2-3 years, depending on the area. They have reached a level such that a budget of Rs. 20-25 lakhs would be about the minimum you need to get anything decent (good residential neighbourhood, 2 bedroom) in the city. Prices in the crores are now commonplace. Chances are, if you’re buying an apartment ten years from now with the money you have in savings accounts, you will need to move to towns that you haven’t even heard of today!

I'm sorry if the points above seem harsh, but those are the facts. And that's why you’ve really got to get started right away. There will always be excuses for putting off investing (let's face it, it's not exactly fun) but I can assure you that the hard work is only in the beginning. After that, for most of us, a disciplined approach to investing can run almost completely on auto-pilot.

Last (but this could have just as well been the first point) the magic of compound interest really kicks in when your investments have time to deliver returns. All else being equal (and sometimes even when things are not quite equal) the earlier you start, the richer you will be. Investing is one of the areas where the fable of the 'Hare and the Tortoise' really rings true.

Give your money time and, even at low rates of interest (yes, you do not need to invest in stocks if you don't want to), you will probably do better overall than many, many people who've made a quick buck in the current bull run, myself included.

Just get started! It’s that simple.

Next Post on Beginning Investing: How Much Are You Worth?