If you are a parent you will better understand this. For children’s education and their upbringing parents are ready to do anything. They give out their heart to make sure their children get the best and be the best. Parents are compromising their need for the sake of children’s bright future. There is a hope that children will take care of them when they are financially inactive. I don’t know whether a child will take care or not, but I would advise if you want to be self-sufficient when you are retired, count one additional child in your life.
Think of equity as your 3rd child
Most families have two children. If you have two, Then you should count it as three. This third one is Equity. You must be thinking that when two is not affordable how can we take care additional third one? Think that you have three children.
Parents are spending enough money on their child’s education, extracurricular activities, wedding etc. This takes around 25 years. If you have two kids think you have three kids. Put the same amount each month into an equity fund that you spend on one child. Do that for the same 25 years. After 25 years, whether your real children look after you or not, this 3rd child will look after you very well for the rest of your life.
You must be thinking why equity? Why is equity known as low-risk high returns investment avenue? It is good if you raise this question. It is good to understand equity thoroughly before you jump into it.
Let’s understand a simple question. Generally, what are your regular source of income? If you are salaried you will get monthly income through salary. Other income through your investment or rent income if you have property and it’s rented. If you run a business, you earn out if it.
Now another question, who earns more money? Salaried or businessman? Of course! Businessmen. If you check the list of world’s richest people you won’t find any salaried person in the list. How these businessmen earn profits? Think about it. To run a business you need to pay a salary of your employee, pay rent for the office, repay loans, pay electricity and other expenses. After overcoming all these obstacles what businessmen gains is a profit. Moreover, this profit keeps on fluctuates every month. Some months are good some are bad, but if you take out an average business earns you more money.
The point is business will help you to create wealth. Equity is nothing but a business. Equity fund is a collection of such companies running businesses. Equity also has ups and downs same in the business. Sometimes you lose money in equity funds same as you lose money in your business.
It’s ok if you don’t do business but, Invest your money in equity funds which run a business and earns you profit. Equity funds earn you higher returns than fix deposit.
Let’s take an example if you start earning at the age of 25 and you will get retire at let say 65. You have 40 years to save for your retirement. Let’s assume you are saving ₹ 1 every year in fix deposits which give you 7.2% interest. It will take 10 years to double your money. So at the end of 40 years, you will have ₹ 16. On the other hand, if you put same ₹ 1 into equity which gives you 14.4% returns, your money will get double in 5 years. So at the end of 40 years, you will have ₹ 256. Huge difference!!
This simple maths will make you think about where to invest. So treat your third baby equally, groom it, nurture it, take care of it and it will take care of you. After all, money can buy happiness and freedom.
Conclusion
Imagine having a third child, not a human one, but an intangible yet precious one called “Equity.” Just like your first two children, Equity needs nurturing, care, and attention to thrive. In the world of finance, equity is a powerful tool that can help you grow wealth and secure your financial future.
Thinking of equity as your third child can provide a helpful perspective on how to nurture and grow this valuable asset. Just like raising a child, it requires patience, education, and a long-term vision. Equity, when approached with discipline and a well-thought-out strategy, can become a powerful force in achieving financial security and prosperity.
FAQs
Equity represents ownership in a company, while debt involves borrowing money, and cash refers to liquid assets.
While equity has historically provided higher returns than other asset classes, it’s essential to remember that past performance does not guarantee future results.
Individual stocks offer more control but come with higher risk, while equity funds offer diversification and professional management.
Equity investments can provide growth potential and help combat the effects of inflation, making them vital for long-term retirement portfolios.
Stay disciplined, avoid emotional decision-making, and focus on your long-term investment strategy.
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I’m sorry, but I’m confused what you mean about equity.
I didn’t see a definition. I read something about two kids and counting them as three, I did read about equity funds, but didn’t really follow, as it was confusing. I’m still trying to figure out the outcome.
“This simple maths will make you think about where to invest.” Still not sure where Y’all were going.
Sorry, but it wasn’t really clear what the message was, but then again, I’m a bit dense.
KS
Thanks for your honest feedback. I appreciate you taking time to read it.
Here what I mean Equity is stocks whether you invest directly or take a mutual fund route. I am saying to invest into equity funds for the same amount as you spend on your kids. In the long run your investment will earn you decent returns in your retirement life. Your investment will take care of you as your child do.
Informative post! Best suited for parents truly.
Glad that it helped you
Great information! Love how you break it down.