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    Here’s why equity rules the roost and will continue doing so in the coming decade

    Publish Date: November 2, 2018

    Move over real estate, gold and fixed deposits. The smart money should be on equity now. At least that’s what the internationally-renowned investment bank — Morgan Stanley — is telling us.

    According to them, equity will be the best-performing asset class over the next ten years. It believes equity can generate 16%-17% returns in the coming decade due to higher economic growth and better corporate earnings.

    Going by Morgan Stanley’s forecast, your investment is likely to double in about four-and-a-half years’ time!

    But what about other asset classes like real estate and gold? More than 85% of Indian families have invested their wealth in them, according to a survey conducted by the Reserve Bank of India last year.

    Surely, they can’t be all wrong, can they?

    Clunky investment

    The previous generation may have sworn by real estate, but millennials have become wary of investing in them.

    Although there is no empirical data, the on-the-move millennials find real estate investments to be a hassle. That’s because buying a property is physical and time-consuming. You need to do a lot of legwork and fight bureaucratic hassles to get a property registered in your name. The entire process of researching for a home to taking care of the legalities seems long-winded and tiring.

    Plus, a lot of millennials don’t want to get sucked into a debt trap. They don’t want to pay hefty loans every month and cut back on the comforts of life like the previous generation did.

    Another factor is that a lot of youngsters don’t want to be tied down to one particular city. They are far more willing to move cities and countries in hope of getting a better job. In such cases, a real estate investment can be a drag on their ambitions.

    Losing sheen

    Rain, hail or shine, gold has been an all-weather friend for Indian families. But the last few years have severely tested this friendship.

    A quick look at the numbers suggest that newer asset classes like equity have generated far better returns compared to gold.

    Data collated by Bloomberg, State Bank of India and Value Research suggest that while equity grew 11.09% in the five years, gold shrank by 0.8% in the same period!

    The extraordinary aspect is that the last five years were not even the best time for equity. In fact, between October 2013 and June 2015, equity slumped to its lowest three-year moving average ever!

    Same is the case with fixed deposits. Many Indians put their money in them because they were assured of decent returns over time.

    But then again, recent data suggest that equity would have been a better option in the last five years. That’s because fixed deposits grew at 6.85% in the same time period.

    This shows that while equity investment would have doubled your money in around six-and-a-half years’ time, fixed deposits would have taken close to 12 years to do so.

    Even money market mutual funds pale in comparison to equity: it gave 7.71% returns compared to equity’s 11.09% over five years.

    Moving with times

    But, isn’t equity risky? They can be. But they generally tend to be risky over a shorter period time. Just for perspective, while fixed deposits and gold grew by 5.75% and 1.63% respectively over a week’s time, equity was far more volatile and increased at a modest 1.04%.

    But, the volatility associated with equity usually flattens over the long-term. As you read earlier, equity provided better returns over a five-year period. In fact, it also performed better than the two other asset classes over a three-year period.

    Another driving factor is that it has become easy to invest in stocks. Thanks to technology, people can put their money in stocks while they are on the go. Unlike with real estate investment, they don’t have to run from pillar to post to put their money in stocks. All they need is a mobile phone.

    Not very long ago, a lot of people would accuse stock investing to be expensive. But that’s not too true anymore. These days, you can actually invest in stocks for as little as Rs 500!

    The only flip side is that you need to do some research before investing in equity. You should understand the dynamics of a stock market before you embark on your investment journey. The end result is always sweet though: if you get it right, the returns can be much higher than if you had invested in any other asset class.

    Related read: Our stock recommendations

    Coming back to Morgan Stanley’s prediction — if it does come true — it would be prudent to actually move over real estate, fixed deposits and gold, and switch to equity now.

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