Those Who Become Poor Through Savings…!
We Malayalis are not far behind when it comes to saving money. Statistics show that people in India save around 29% of their income, and Kerala is no exception.
But is there any real benefit in just saving? No, not much. If we are saving for long-term financial needs, we must consider inflation.
What is Inflation?
Simply put, inflation refers to the increase in the prices of goods and services over time.
For example, imagine you had ₹100 in your hand five years ago, and the price of an egg was ₹5 at that time. You could have bought 20 eggs. But if an egg costs ₹10 today, you would only get 10 eggs for the same ₹100.
Inflation occurs due to various factors, such as demand-supply imbalances and flawed monetary policies.
As mentioned earlier, we Malayalis are good at saving and converting savings into investments. However, for long-term wealth building, we often choose land, gold, or fixed deposits (FDs).
But is the return from these assets enough to meet our future financial needs?
To answer this, we need to evaluate the returns from these investments over a period of 5, 10, or 15 years.
Historically, these asset classes have provided a long-term return of only 6-8%, whereas the inflation rate in the past few years has averaged around 6-7%. If we consider inflation in specific sectors like education or healthcare, it has been as high as 12-14% in recent years.
Looking at it this way, the returns we get from traditional investment methods barely keep up with inflation or even fall behind. This means we constantly need to find additional money to cover rising costs.
This is how we become poor by just saving.
The Role of the Stock Market and Mutual Funds
This is where the relevance of the stock market and mutual funds comes in. Over the long term, the stock market has outperformed traditional investment methods in terms of returns.
For ordinary investors, mutual funds offer the easiest way to participate in the stock market. Therefore, if you do not want to become poor by just saving, it is essential to include mutual funds in your long-term investment portfolio.
