The Investment PuzzleETFs AND INDEXING
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When he reached the lobby of the office,Prema, Vandana and Suhas were alreadythere. Since they worked in the same officeand lived in the same suburb, theyhad formed a car pool whichincluded the four of them andPrema's husband Nilesh, who wasa marketing manager in aninvestment firm around the corner.As soon as they had settled down in the car, Prema turned to Shivkumar andchirped, “Hey Shiv, I heard that Mini is expecting a baby. That's great news. Youmust be really excited.” But before he could reply, Suhas cut in, “With all theadditional expenses that you're going to have to meet, I think 'nervous' shoulddescribe your state of mind better. I hate to be the one to burst your joy bubblebut two kids means twice as much of everything. Have you started reviewing your finances yet?” Shiv felt a little irritated at Suhas' attitude but heremembered that Suhas was not called “Suhas the cynic” for nothing. Healways seemed to look at the worst case scenario of any situation.Nilesh, who had been silent so far, came to Shiv's rescue. “There's no reasonfor him to be worried. If he's been investing in stocks, Shiv could easily supporttwins or even triplets.”It was then that Shiv actually felt a little worried. Although he had been working for the past 10 years, he had invested very little of his savings in the stockmarket. He had a decent balance in a provident fund account and a couple of fixed deposits with various banks. A bulk of his savings had gone into paying fora house and a car that he had purchased when he married Mini 7 years ago.And in order to ensure that Aditya secured admission in a premium school, hehad to pay a hefty deposit.He had heard that investing in stocks was the best way to build up wealth. Infact, he had recently read in a leading financial magazine that in the long term,the returns from equity-based investments far exceed the returns from anyother avenue of investment. At the same time he was aware that manyinvestors had lost money in the stock market in the past. He knew enoughabout the market to realise that such investors had lost money because theyhad tried to make a quick buck by investing on the basis of 'hot tips'. But then
"After twenty years of watching investment practitioners dance around the fire shaking their feathered sticks, I observe that far too many of their patients die and that the turnover of medicine men is rather high. There must be a better way. And there is! [index funds]
- John C. Bogle, founder and retired CEOof The Vanguard Group
Percentage returns from various forms of investment (1980-2005)
20151050StockmarketFixeddepositsGoldPPFNSC
Source : RBI
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