Where does your money workout?

In the previous blogs we have learnt about various must-have insurance covers. Today we will explore various classes of investments. Everyone might be aware about some or all of them. But we will look at those through a different perspective – the workout way.

So does your money workout? That seems to be a weird question. We sweat out in the gyms and not our money. But I believe that money is like a body muscle and needs some serious workout in order to grow in size. So how can the money workout? I have drawn some parallels between the various investment options and the types of workout.

1) Idling away: Now this is really not a type of workout. As the word suggests it means doing nothing with your money. When you hoard money at home, in lockers or just in savings account (earning at 4% p.a.) the money does not workout at all. It is similar to lying on sofa thinking about all the gyms you can join. So the money muscle does not grow in this case.

Everyone knows the benefits of a regular workout. But only a few take the sincere efforts to actually learn the workout techniques and practise them regularly. The reasons might be pure lethargy, procrastination, lack of time, ‘I am fit’ (dis)belief. In similar way, everyone knows the importance of investments. But very few really take the effort to give the right kind of workout to their investments. The reasons here are quite similar.

2) Yoga: Doing regular Yogasanas and Pranayaam is definitely helpful. It relieves the stress, corrects posture, enhances blood circulation and calms our mind. But this does not build big muscles. Yoga resembles the debt category of investments. Debt is when you lend money to someone and earn nearly fixed interest income. The debt workout (FDs, RDs, Company deposits, Debt Mutual Funds, PPF etc) calms down your money. It does better than just idling away but still lacks in building the big muscles.

3) Daily chores: These are the part and parcel of our daily routines. This may be walking to the railway station, washing your vehicle, climbing the stairs, mopping the floor etc. But these have limitations. They exhaust you. People opine that this is better than doing no exercises. Many use only these ways to workout. Even if the muscles grow, their growth is anything but stupendous.

We can relate daily chores to investors' love for real estate and gold. These form the major chunk of most Indian investors’ portfolio. Some believe that gold and real estate are the only ways to make your money workout harder. You will find many of them boasting how this way of workout grew bigger money muscles. You would often find someone telling you that the value of property bought in 1960's has grown 100 times. But if calculated rationally the growth is just about 10% per year.

4) Weight training: This involves lifting, pulling and pushing heavy weights to build the biceps, triceps, chest, back, shoulders, legs. This is quite draining and if done without proper guidance can lead to injuries and strains. Most youngsters hit the gyms because it looks cool. But sooner the excitement fizzles out and attrition rate increases.

Now this can be compared to equity investments. Equity is your ownership in a business. The business may or may not be listed on a stock exchange. The equity workout of money seems to be cool and something which can be boasted off. Extraordinary money muscle growth is expected in shorter duration. But without proper guidance the strains (read losses) increase and drive away the money from the equity gyms.

Funny enough is the way, a gym goer checks his muscles in the mirrors to actually feel satisfied with the growth. Similar to this, money looks into the mirror (market rise) to check the growth. Few are satisfied but most are dejected. And so the attrition rates are high here. But this grows really big muscles over time. And if continued under proper guidance, it can be highly effective. To cite an example, HDFC Bank has multiplied 30 times in the last 15 years delivering yearly return of 25%. So Rs. 10,000 invested in the year 2000 would have grown to around Rs.2,84,000 today.

But one cannot always hit the gym. Gloomy environment during the rainy season or some sprains may keep you away from gym just like the unfavourable market conditions keep money away from the equity markets. Nonetheless one should continue with the workout.

Also sometimes we feel that the muscle growth has stopped. We then massage our body to relieve the stresses and pave way for further growth. So when the money workout doesn't yield good results over a prolonged period of time, it should be given a massage too. Massage given to money is known as re-balancing where you give the debt work out or engage the money in daily chores or just keep the money idle.

Ideally the money should workout in all the possible ways. So let your money workout vigorously even if you prefer the Yogasanas & daily chores.