Saving is not equal to investing

We save to tide over difficult times. We invest to pursue financial goals like a comfortable retirement.
Gautam Chikermane
AT 22.3 per cent, India’s savings rate is respectable. And yet India, and Indians, are not wealthy. This high-savings-poor-savers contradiction occurs because we believe in saving for a rainy day rather than in creating wealth. We look at putting money aside for emergencies or even for a comfortable retirement, not to make our money grow and create wealth. We seek the security of keeping our capital intact rather than taking a well-planned risk with it. We focus on saving rather than on investing. One of the problems is our belief in this equation: saving = investing. I have seen even experts confuse these two words and use them interchangeably. While on the face of it they may be the same–in that both sacrifice present consumption for future use–in spirit, they’re not.
Different goals. People save in anticipation of uncertainties–a sudden hospitalisation, being out of a job for six months and so on. It’s all very well when there’s a cheque coming at the end of the month or when business is growing. But when things aren’t so good, this money helps them get by without too much misery. On the other hand, people invest to pursue life goals such as building a house, financing a child’s marriage or a comfortable retirement.
Opinion in Outlook Money

Invest well to spend smartly

The here and now is all very well, but you need to save and invest to take care of your future needs.
Gautam Chikermane
TRUE, THE starving stomachs of the 40-year-long Socialist era had to be filled. So, now that the economy has been liberalised, cars, TVs, VCRs, CD players, chocolates, jeans, shoes, drinks–just about everything the wealthier classes had aspired to earlier–are being bought as if they will disappear tomorrow. Much of this buying is financed by debt; so not only are they spending much of what they have, they are borrowing to do so! But the race for the latest goodies is never-ending: it could be a Furby for your daughter today or a holiday on the moon tomorrow. The question you need to answer is this: what are my financial priorities? Let me explain. I’m listing three absolutely essential, absolutely ‘boring’ things all of you will definitely have to spend on. Make sure you’ve planned for them before you buy the next fashion statement.
Opinion in Outlook Money

Which risks should you take?

Risk goes far beyond the usual volatility-reward equation and applies as much to earning money as to investing it.
Gautam Chikermane
IN MY previous column, Are they Investing or Gambling?, I had shown a methodology of climbing the ladder of risk by according 5 extra percentage points to each rung of higher risk that investors climb. So if ‘risk-free’ government securities give you a tax-adjusted return of 17.1 per cent, the next level of risk, say a mutual fund, should give you 22.1 per cent and so on. This was a simplistic, back-of-the-envelope, directional look at risk. But what is risk? How much risk can we take without getting financial indigestion? Is one man’s risk the same as another’s? Or is risk-taking a highly individual activity, a solitary journey towards wealth creation?
What is risk? The most common way of defining risk is something like this: the fluctuation in the return on your investments and, leave alone the potential for or extent of growth, the possibility of losing all your money. There is also this commonly used mantra–high risks translate into high rewards–which need not be true all the time, as the recent carnage in technology stocks showed.
Opinion in Outlook Money

Are they investing or gambling?

You are gambling when what you buy neither assures you safety of capital nor gives you a reasonable return.
Gautam Chikermane
AT THE end of every stock market scam, particularly when share prices start falling sharply, the one common refrain heard is: the stock market is a gambling den, of the gamblers, for the gamblers, by the gamblers. Last week, one investor who had lost a lot of money in the recent carnage told me, "The stock market is a satta. I’m not coming back again." Interestingly, he said the same thing eight years ago, when he lost money in the securities scam.
He’s not alone. A look at the trading volumes will tell you far more about the departure of investors from the market than any number of newspaper pages or analysts’ reports. Compared to a daily turnover of around Rs 6,300 crore on the National Stock Exchange on December 6, 2000, the daily turnover today is around Rs 1,900 crore–a fall of 70 per cent! The quantity of shares traded has fallen to 97 million, almost half its value, in less than five months. The scam has taken its toll.
Opinion in Outlook Money

A deadly mistress called greed

When you invest in a stock you think will quickly give you 30% be ready to lose as much as quick.
Gautam Chikermane
WHAT ON earth could make a man kill his children? When the answer is ‘money’, a crime that could have been tragic seems only appalling. Forty-year-old Sanjay Agarwal and his wife Sapna (33) decide to do away with their lives–and take those of their two innocent children, Ashita (10) and Chirag (6), as well. They killed themselves and their children by hanging from a fan in their house in Delhi on March 21. Reason: Sanjay, who worked with Omkar Securities, suffered heavy losses in the recent stock market crash, the second in 12 months, lost his money, his clients. And his life.
Five days earlier, on March 16, Virender Kumar Aggarwal (48) of Hissar (Haryana), and his wife Ramkali committed suicide at a hotel in Delhi’s Paharganj. In his suicide note, Virender, a head cashier at Punjab National Bank, admitted to pilfering Rs 70 lakh from the Bank Employees’ Cooperative Society. He was a known stock market gambler, but no one believed he would gamble the society’s savings away. He did. Why?
Opinion in Outlook Money