Saturday, May 25, 2024
HomeMutual FundWhy are you so pessimistic about equity investing?!

Why are you so pessimistic about equity investing?!


A frequent criticism by those who encounter freefincal articles or videos is, “This guy is very pessimistic about equity investing”. I also often get asked why that is the case. Please allow me to explain.

There is a difference between lack of faith and pessimism. If I lack belief in equity, I will not go near it. Pessimism does not preclude participation. It only serves as a risk management mechanism. Pessimism prevents faith from turning into blind faith.

Let us start with the data. There is no evidence that long-term equity investing will always be successful. However, there is enough evidence that there is a reasonable chance that long-term equity investing will beat inflation.

See:

That reasonable chance is enough to have faith in long-term equity investing. However, there are many caveats.

Just because equity, the asset class, could beat inflation, it does not mean we will! Let us set the PPF rate as a reasonable proxy for personal inflation (always higher than the government’s declaration).

After ten years, if we expect the “India growth story” to pan out as expected, PPF rates should be closer to 7%. So, any equity return above 7% wins the asset class. But hang on. We don’t expect 7.5% returns from equity (after tax). Most of the investors expect at least 12%. Not today. After 10 years or 15 years or more.

It is possible. But it is also not possible! If we expect 12% and get 8-9%, equity has won, but we have lost. Why? Because we expected more and invested less. Our corpus and our purchasing power will be lower than expected. The time lost in building the corpus is gone forever.

This is why pessimism is crucial. You recognise things can go wrong, and you plan for it.

  1. You expect less, so you will be disappointed less.
  2. You do not go overboard on equity. You have a balanced portfolio with no more than 50-60% equity exposure. You manage the portfolio with regular rebalancing.
  3. You have a variable asset allocation schedule to combat bad sequences of equity returns.
  4. You have a well-diversified bucket strategy for post-retirement income. See: Retirement plan review: Am I on track to retire by 50?

Once I have a “what if things don’t go to plan strategy” in place, I will stick to the plan.

  • I have increased the amount I put into equity by about 20% on average from June 2008.
  • I currently hold 60% equity in retirement and my son’s future portfolios.

I wouldn’t do this If I did not “believe” in equity.

We can only control the controllable.

  • We can start investing in equity as soon as possible, giving us as much time as possible to combat the sequence of returns risk.
  • We can invest as much as possible to ensure our corpus gets as close as possible to the target in case returns are lower than expected.

We have no control over equity returns. A return in the high teens can suddenly drop to toddlerhood or vice-versa. See: My retirement equity MF portfolio return is 2.75% after 12 years!

We should not be expecting any set return. Instead, we should prioritise steering our portfolio to the target corpus or above at any point in the investment journey. For me, pessimism is this course correction tool.

Each investor will have to devise their strategy. Anything other than blind faith (equivalent to leaving the fate of our hard-earned money to luck) should reasonably work.

The surprised investor is a failed investor – William Bernstein in the Intelligent Asset Allocator.

“Both optimists and pessimists contribute to society. The optimist invents the aeroplane, the pessimist the parachute.”
― George Bernard Shaw

Do share this article with your friends using the buttons below.


🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!


Use our Robo-advisory Tool for a start-to-finish financial plan! More than 1,000 investors and advisors use this!


New Tool! => Track your mutual funds and stock investments with this Google Sheet!


We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.


Follow Freefincal on Google News
Follow Freefincal on Google News
Subscribe to the freefincal Youtube Channel. Subscribe button courtesy: Vecteezy.
Subscribe to the freefincal Youtube Channel.
Follow freefincal on WhatsApp Channel
Follow freefincal on WhatsApp

Podcast: Let’s Get RICH With PATTU! Every single Indian CAN grow their wealth! 

Listen to the Lets Get Rich with Pattu Podcast
Listen to the Let’s Get Rich with Pattu Podcast

You can watch podcast episodes on the OfSpin Media Friends YouTube Channel.

Lets Get RICH With PATTU podcast on YouTube
Let’s Get RICH With PATTU podcast on YouTube.

🔥Now Watch Let’s Get Rich With Pattu தமிழில் (in Tamil)! 🔥


  • Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
  • Have a question? Subscribe to our newsletter using the form below.
  • Hit ‘reply’ to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.

Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!


About The Author

Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.


Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.


Our new course!  Increase your income by getting people to pay for your skills! More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   


Our new book for kids: “Chinchu Gets a Superpower!” is now available!

Both boy and girl version covers of Chinchu gets a superpower
Both the boy and girl-version covers of “Chinchu Gets a superpower”.

Most investor problems can be traced to a lack of informed decision-making. We made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So, in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it, as well as teaching him several key ideas of decision-making and money management, is the narrative. What readers say!

Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!

Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. – Arun.

Buy the book: Chinchu gets a superpower for your child!


How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!


Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!


We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.


About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)


Connect with us on social media


Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.


Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.


Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)


 



RELATED ARTICLES

LEAVE A REPLY

Please enter your comment!
Please enter your name here

- Advertisment -
Google search engine

Most Popular

Recent Comments