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Friday, September 26, 2014

Real Estate or Stocks? - Which is better?

Real Estate or Stocks? - Which is better?





Over the long term, equities have delivered superior returns compared with realty.

How many times have you heard friends gloat about their luck in real estate investments? "My father bought a flat at Santacruz for `2 lakh in 1977. It's now worth `3 crore." It's not an empty boast.


Property prices in Mumbai (and other metros as well) have risen manifold in the past four decades.

Though the investment in a flat in Santacruz has grown 150 times, it pales when compared with investments in certain other avenues, such as stocks. If your friend's father had invested the money in Wipro shares, his investment would be worth over `8,000 crore.


It's enough to buy an entire complex of 400-500 apartments at Santacruz.


This is in addition to the dividend paid by the company during the past four decades.

Critics may say that Wipro is an exception, an outlier in a market that only reallocates wealth and ends up in a zero sum game. However, Wipro is not the only one that has created mega bucks for investors. Even if you discount the phenomenal success of Infosys, there are scores of other companies, including RIL, Bajaj Auto, Cipla, Nestle, Hindustan Zinc, even Hindustan Unilever, which did not participate in the bull run between 2002 and 200, that have made millionaires of ordinary investors.

Forget individual stocks; if you had simply started an SIP in the Sensex stocks in 1977, you would have earned annualised returns of over 20%. This is not bad, considering that during the same period, annualised returns from the Santacruz flat were 15% and consumer inflation was between 10% and 12%.

There's no way you can set the clock back. There is no point in ruing past decisions. All you can do is try and avoid making the same mistakes again.
You need to start investing in a good equity fund now. If you cannot pick a good fund, start an SIP in an index fund. However, some actively managed diversified equity funds have done better than the Sensex or Nifty in the past 10-15 years. I can't say how the equity markets will perform in the short (6-12 months) to medium term (2-3 years), but over the long-term, equities will continue to give better returns than gold or real estate.

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

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