Wednesday, August 23, 2017

Fixation with annual celebrations

As the Modi Government celebrates three years in office, don’t be blinded by the festivities and noise around it

By Narayan Krishnamurthy

The past few days and the next few are all about the outreach initiatives of the Narendra Modi government’s three years in office. I am expecting a lot of platitudes, starting from the one that came from the BJP Party President Amit Shah who made it a point to state: “Narendra Modi Government Did in three Years What others Didn't in 70”. He did not dwell on the details, but the rhetoric had its impact with followers thumping their chests while several others asked for specifics of what the government did to make such a claim.

As the editor of this magazine which will be soon celebrating its 19th anniversary, I can confidently tell you that over this 19-year period, the financial services industry has evolved with some good, some not so good, some forgettable and some yet to come changes. But, when I look back, the impact of all the actions have made the financial services industry much stronger. And, the financial consumer has benefited the most. Yes, on the financial awareness front a lot more could be done than what is being done now. Overall, the impact of the benefits is there to experience, be it by way of product choice, pricing or just products that address unique needs.

Celebrating milestones

Let’s take a child’s first birthday—it is an important milestone. Turning 50 is a milestone. And depending on the faith and belief you carry, turning 60, 75, 80 and so on are all the years in your lifetime that call for celebrations, which is not just for you but also for your near and dear ones. The birthday that you celebrate each year turns into an affair with close friends and family—these are important, but not that big an occasion for a bash. So, in that sense, the government celebrating its anniversaries over its five year tenure is nothing but a way to rejoice a non occasion.

When it comes to financial aspirations, three goals standout for most Indians: buying a house, child’s education and one’s own retirement. If one embarks on these in a timely manner, each one of them can be realised in time. The three things that matter with your investments are – how much you invest, how long you invest for and what does the investment earn in this period. A financially successful individual rarely gets into celebrating his financial success. For instance, for all his wealth, Warren Buffett does not celebrate every time he makes an additional billion. In fact, those tracking his wealth celebrate such milestones more than him.

The past three years’ annualised returns of the S&P BSE Sensex are about 7 per cent, which is at best a shade better than what a fixed deposit offers. However, when you look at the historical long-term returns of the Sensex, it hovers around 16 per cent. If you take the analogy of sticking to investing with a long-term horizon in a broad index like the S&P BSE Sensex or the Nifty, the chances of losing money diminishes every time you stay invested for a decade or longer. However, if you celebrate the Sensex touching a new high, as was the case today, you will need to be patient for a fairly longer time to see growth with your investments.

Effectively, celebrating short-term gains is not bad, but that should not blind you with the potential prospects of real long-term gains. That is how a government should also be assessed with its performance. Celebrate your small investment victories, but do not forget the larger battle of achieving your financial goals, which is why you have set about with investments. There are investment opportunities that you could evaluate while observing the government’s third year in office celebrations. Don’t be sidetracked by parties, as there are two more years before this government goes to polls.

 

 

 

nk@outlookindia.com

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