Why we must diversify our investment between Real Estate, FD and Equities? | Technical, Finance, Investment Questions

Why we must diversify our investment between Real Estate, FD and Equities?

Anushka Trivedi

3 months ago

There are 1000 of influencers and youtubers are making videos and claiming people can become millionaires by investing in Equities.

There are generally 3 ways a common man can invest their money. These are mostly Real Estate, FD and Equities.


Let's explore the Advantage & Disadvantage for each one.


Investing in Equities:


Advantage:


Investing is Equities can give us good return if we chose a good company stock.

It can give upto 20-30% compounding return if we invest for long term 8-10 Years in good companies.

Equities also gives yearly 5-8% Dividend. 


Disadvantage:


It's not possible to get liquidity in case of emergency. If we want to sell it urgently we might get loss.

If you have selected wrong companies for equity investment, you might lose your investment if that company goes bankrupt.

If there is a recession or Market Crash like 2008, we may lose our investment or we have to wait long term 8-10 years to get back his investment when Market became normal.



Investing in Real Estate:


Advantage:


Investing is Real Estate can give us good return if we buy Flat in cities like Bengaluru and Hyderabad where rental is very high due to high demand.

If we buy Flat for stay in Bengaluru, Hyderabad or Pune then it can save monthly rental upto 40-50,000 Monthly.

Having Flat is cities like Bengaluru and Hyderabad can give us monthly fixed income upto 40-50,000 Monthly by rental income.


Disadvantage:


It's not possible to get liquidity in case of emergency. If we want to sell Flat urgently, it's not possible as selling Flat is not easy. It might take 6-8 months to sell Flat.

If we buy expensive Flat by paying 80% amount as Home Loan, we may have to pay huge interest upto 8-10% for a long 20 years. 

In case if we lose our employment, it may create stress as we might not be able to pay monthly EMI.

If we buy expensive Flat by paying 80% amount as Home Loan, we might have to pay 40-50% of our monthly income as EMI every month and we are left with very less liquidity. This impacts our daily to daily life as we can't enjoy our life peacefully due to lack of liquidity.



Investing in Fixed Deposit:


Advantage:


Fixed Deposit provides 5-8% Fixed Returns on Investment yearly.

Fixed Deposit can be used anytime as liquid cash in case of emergency.

Fixed Deposit is not impacted by Market Crash or Recession.


Disadvantage:


Fixed Deposit provides a limited fixed return only. It only gives gives very low 5-8% Fixed Returns on Investment which is less than inflation itself.

If you have selected wrong bank for FD investment, you might lose your investment if that bank goes bankrupt.




Now let's understand this situation with example.


One person who started working in IT in 2000 and he didn't buy any House and put all his savings 10 Lacs into Equities but in 2008 Market Crash, his investment became only 25-50,000. However he didn't sell his stocks.

His all 10 Lacs investment was blocked in loss in Equities and he had to wait 6-8 Years again to get back his investment when Market became normal.

Some other people who have bought their Flat in Bengaluru and also invested some money on Equities and some in FD, were in very good position as they always had some FD Money for backup for liquidity in bad times.



Conclusion: 


So we must wisely invest our money and diversify our investment between Real Estate, FD and Equities.

An ideal investor must follow the 60:20:20 rule while investing in Real Estate, FD and Equities.

Now a days there are 1000 of influencers and youtubers are making videos and claiming people can become millionaires by investing in Equities.

We shouldn't become too much emotional by seeing influencers videos about becoming millionaires by Equities. All these people are fake and they just make fake videos to earn money by videos.

If it's so easy to become millionaires, everyone would have become millionaires now.





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Anushka Trivedi

Writer at Xeloxo

3 months ago

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