Put your Money to work

We often listen and use the term “Money Grows” or “Money Multiplies”.

Is it actually the money that grows?

No. In fact money’s only characteristic is that it reduces (depreciates) in price over a period of time.

Let’s take an example. One could buy 1 litre of Milk in Rs 8 in 1980. Today, if I go to the grocer, give him Rs. 8 and ask for 1 Litre of milk. He will either laugh at me or throw me out.   Rs 8 have depreciated in its value. Today milk costs around Rs 48 a litre. The value of Rs 8 is depreciated to one sixth in last 30 years or so.

In literal sense money depreciates if it is kept idle. Years back people did not have many alternatives to invest their money. They used to store the cash or coins in their lockers. What has happened to that cash when it was found years later by their next generation? The money was much less worth (or worthless) than what it was when it was stored.

So why we say that money grows?

Let’s take same example. Suppose, people who had stored coins or notes in their locker would have, instead, bought the gold worth that amount and kept in their lockers. Their next generation would have appreciated the ancestors pretty much than in earlier case. Consider the period of keeping the gold to be around 1950s. The value would have been appreciated 280 times today.

It is not the money that grows. It is the asset or service bought in exchange of money that grows in value.

Put your money to work. Don’t let it lie idle.

Either buy assets with the money you have. You will gain the appreciated returns. Assets will grow in price. You will sell it at higher cost to earn profit. Lend (put on rent) your money to someone (let’s say a Bank) and they will pay you periodical rent for using your money. The rent paid is known as interest.

The next task is to choose the asset class (which assets to be bought) or investment class (whom to rent the money). Here the risk reward ratio comes into picture. The more the risk you are willing to take with your money, the more the chance of your money growing faster.

Suppose you have Rs 2 Lac on an average (average balance) lying in your savings account for last 2 years. You would have earned interest of around 28000 with 4.5% compounded ROI in 2 years.

Instead, if you would have bought a piece of land or would have invested in shares or would have bought even a Fixed Deposit, your chances of earning more returns on Rs 2 Lac were far greater. If you would have sold the asset for Rs 3 Lac after 2 years, you would have earned returns with ROI of 14.5%. So as compared to investing in assets or putting it in better asset class, money was lying as good as unused in savings account for last 2 years.

Of course, there is little extra risk involved in all these options. But, as per rule, even the bank does not guarantee your capital beyond amount of Rs 1 Lac. So the risk is everywhere. We are exposed to life threat every time we move on road. It’s the difference in the amount of risk depending on which mode of travel we move by or which road we travel on.

Even in a family or office everyone has some or other task. We do not want a member of family or of office to sit idle. Why let our money sit idle.

So, the next job is to check and identify, which portion of your money is not working for you. Which investment or asset is not earning you the expected returns.It may call for redefining your portfolio.

Market(Nifty) View for period 11^th to 16^th Aug

Last week Nifty continued to fall for 3 days and touched a low of 5486 but managed to close at 5519. Nifty managed to hold this psychological level of 5500.  From here it started its pullback rally on Thursday, which was last session of the week. The closing on Thursday was 5565.

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Recommendations of the Week

BhartiAirtel: Has taken support at 325 and shown signs of strong rally upward. In the week to come expect Bharti to touch 350-355. Buy Bharti at current level of 337 for target of 350. Maintain Stoploss at 322.

Biocon: Biocon broke out with convincing volumes on Thursday. It will touch the next level of resistance which is at 380. Buy Biocon at 337-340 and expect target of 380 in next few days. Maintain Stoploss at 325.

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Disclaimer: Nifty view and recommendations are given to the best of our analysis and data available with us. No one should understand these recommendations as advice. There is substantial amount of risk involved. Bonvista Financial Planners is in no way responsible for any loss occurring out of any transactions.