marzot6 ‘34 years return —FD, Geld, Svar & Sansex « Wise Wealth Advisors Wise Wealth Advisors D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor 34 years return — FD, Gold, Silver & Sensex Posted by Muthu on April 22, 2013 Please find attached 3 files a) 34 years return- FD & Sensex b) 3dyears return. Sense: c) 34.years return- Silver & Sensex Why 34 years? Only in 1979-80, Sensex came into existence with base as 100, 1) Assume you've invested Rs.1 lakh each in FD, gold, silver and Sensex 34 years ago. As of 31’st March 2013 the value is as follows: FD- Rs.15.5 lakhs, Gold- Rs.37.17 lakhs, and Sensex- Rs.1.88 crores 2) Unlike other assets mentioned above, Sensex has dividend yield in addition to capital growth. Assuming a dividend yield of 2% on an average, the Sensex returns work out to Rs.3.35 crores 3) _ In terms of percentage, the 34 years return (as given above) is as follows: FD-8.39%, Gold- 11.21%, Silver- 11.05% and Sensex- 16.65% (18.65% if dividend yield is as assumed above) 4) When we talk about returns, we've to talk about inflation too. The average annualized inflation for the above period is 7.63%. 5) _IfRs.1 lakh has been kept under the mattress instead of being invested, it’s value has come down to mere Rupees seven thousand (ie.) purchasing power of rupee reduced by whopping 93% over 34 year period. 6) What we should look for is real returns (j.e.) returns after inflation and taxes. Since tax differs from each asset class and income category, I've taken only inflation. Inflation is common for all:-) 7) After adjusting for inflation, the asset classes have grown by following annualized rate in real terms. FD- 0.11%, Gold-2.72%, Silver-2.57% and Sensex- 7.74% (around 10% including dividend yield). These numbers matter a lot. This is what our wealth would have grown after adjusting for inflation, Since we know the tax details for each asset class and for our income, we can work out hipe:iwisewealbadvisors.com/20"304/2094-years-relu (gold. siver-sonsex! 1Mrar%6 ‘i years retin FD, Gal, Svar & Sensex «Wise Weallh Advisors the return after taxes too. FD would automatically turn negative. Gold and Silver, despite run up in the recent years, would have provided a negligible return. Only equity would have provided a real rate of return of above 6% 8) Inthe long run, the best we can aim and get even in asset classes like equity and real estate is real return of around 4%+. Growing money is that difficult. More important is not loosing the money. 9) Gold's real rate of return of 2.72% is made possible due to rupee significantly depreciating, between 1980s to early last decade. Otherwise we might have got even a negative return. Ill explain this by example. Assume the rupee dollar conversion rate is 1 USD = Rs.50. For illustration purposes, let us assume the price of 1 gram of gold is 1 USD. With the above conversion rate, the value of 1 gm of gold is Rs.50. Imagine a scenario when rupee depreciates by 100% (i.e.) 1 USD = Rs.100/- The gold price remains the same at 1 USD. The value of our gold would increase by 100% to Rs.100/- though the price has not changed in the international markets and we being the net importer of gold. 10) Any one who talks about increase in gold price for 50 years, 75 years or 100 years (I’m seeing many ads), without accounting for currency changes is fooling others. I've taken the gold price data from RBI. I don’t know about the authenticity of prices shown in many ads. 11) Please use FD for contingency or emergency funds. Let gold be part of social requirement and not exceed 5% to 10% of investment portfolio. Silver is again part of only social or cultural needs. Sensex / Equity is for building wealth. I believe real estate also can build wealth but has no reliable long term past data. 12) The last 5 to 6 years increase in gold prices have mainly come from speculators who invested in ETFs, gold futures etc. and not from jewelry demand. Speculators can move out as swiftly as they moved in. 13) There are people who are saying gold would not go below $1300 as cost of production (break even price) is the same amount. Gold is not a typical consumer product which is sold at cost plus profit margins. Gold miners do not decide the gold price. They merely enjoy or suffer according to gold prices. Gold prices are influenced by a number of complex factors whereas fresh supply from miners is less than 2% of the annual demand 14) Please go through the workings and assumptions in the attached file. I've tried my best. It may not be perfect but would be a useful pointer. Request your opinion and feedback. This entry was posted on April 22, 2013 at 5:37 pm and is filed under Basics, Gold, Muthu's Musings, Stock Market, Wealth. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site. 8 Responses to “34 years return — FD, Gold, Silver & Sensex” 1.lakshmipathy said (gold. siver-sonsex! 2marzot6 ‘34 years reir FD, Geld, Svar & Sensex « Wise Wealth Advisors Excellently written. Thanks Reply 2.amol said April 23, 2013 at 2:22 am Mutu, interesting data. thanks for the efforts you have taken to collect this data and presenting in understandable manner Reply 3. S.Ravikumar said April 23, 2013 at 11:02 am wonderful efforts, and thanks for sharing this Golden information. ravikumar Reply 4. varghese said April 25, 2013 at 9:30 am real facts. please write regularly. your blogs can be smaller but write regularly Reply . Jegadeeswaran said ber 3, 2013 at 3:54 pm good one, thanks for sharing this — Jegadeesh , Sundaram mutual , Madurai Reply 6. C D'Souza said June 20, 2014 at 12:38 pm Wow. Excellent article based on real historical data. So rare to find articles like this in the Indian context. hpe:iwisewealbwadvisors.com/20"304/2294-years-reu (gold. siver-sonsex! amarzot6 ‘34 years reir FD, Geld, Svar & Sensex « Wise Wealth Advisors 7. MOHAN said October 10, 2014 at 3:56 pm IT WAS AN EYE OPENER.THANKS A MILLION FOR TAKING PAINS TO OPEN A LAYMANS EYES.IT HAS BENEFITED ME IMMENSELY Reply 8. Biswajit Mondal said March 8, 2016 at 12:57 pm Its a fantastic mind setting chart for understand & compare before investing Reply My Sister » Blog at WordPress.com, | The Andreas09 Theme. hpe:iwisewealbwadvisors.com/20"304/2294-years-reu (gold. siver-sonsex! a