These are just some quick thoughts on the Assets – Gold,Real Estate and Equities out of the three am highly biased towards equities so take it with a Ton of salt and pepper. 
Gold – Not Glittering for 5 years – 28k in 2011 and 28k in 2016
- Gold topped out in Dollar Terms in end of 2011 and Global Equities bottomed almost around the same time. During those times we had a lot of wild targets being heard of 2500-5500 by various GoldBugs.
- An old post which did work - Gold –Possible Top out on Long Term Charts . ( Maine Bola tha moment but no benefit as no trade )
- Gold is now down from 1900 to 1170 that is a drop of 38% from peak.
- Gold was at 28000 in 2011 and is now still at 28000 more than 5 years later – Not Glittering ?
- The INR depreciation over the last 8 years from 40 to 68 also added to the glittering of Gold in INR terms.
- The sad part about Gold is it cannot earn any income , whereas Real Estate can give Rent and Fixed Income gives Interest. ( Wife says – I can put a Gold Necklace on my Neck – Where do I frame your Shares ? )
- Simply put Last 5 years Gold has not glittered much as an asset.
Real Estate – Not doing great for last 2 years and tougher times ahead ?
- Real Estate across India saw a jump of 5-10 times in last 10 years and the growth has only started slowing down for last couple of years and in selective areas has also fallen a bit.
- Real Estate if used as a Home or Office has a utility for every day unlike Gold where it is tough to be used everyday ( Bappi Lahri is an exception)
- The leverage of Housing Loans also adds to the return over a period of time. As a fact over the last 10-20 years it beats Equities hands down if we consider the Leverage of Loan.
I would not go on to any negatives on Real Estate or How Renting is also an Option and start a big discussion.
The last time I wrote something on Real Estate - - You are the Slave of your House!!!,
The post had maximum amount of comments I have ever seen on any of the posts since inception.
Please Note - In the last 10 years or more of blogging the no of posts written by me are around 2500 +. Most of the posts are on Technical Analysis of Indian Equities.
What Next over the next 2-3 years for Real Estate
- Last few years the Ready Reckoner Prices in many cities and Towns have been increased more faster than the Increase in Real Estate Prices. This automatically starts increasing the Agreement Value or the White Component in the Deal.
- A lot of financing at least in Urban and Tier 2-3 cities is now being funded by Banks, Private Equity and Large Corporate Developers. This leads to lesser or zero Black Component.
- Add to this trend of increasing White Component in a Real Estate Deal – We now have Demonetization.
- There is a possibility in the near term due to lack of liquidity, business crunch due to demonetization , the real estate prices can take a little cut. ( I might have views but those are just stupid speculations. )
- Also over the next 2-3 years there will be lesser hard cash in the system , increase or no change in ready reckoner prices, higher white component. This also increases the Stamp Duty and other charges as a percentage of the Deal.
- The incentive to deploy unaccounted black money into Real Estate gets reduced if the Black component in the deal reduces.
Real Estate cannot be generalized as various cities/towns have different dynamics. But the scenario does not seem to be rosy for sure. Can we see the Glitter in Real Estate also fade off.
( Land prices could also be in trouble but being a Mumbaikar its absolutely impossible to see a patch of land free anywhere , forget about having a view on land prices )
Fixed Deposits are also now getting closer to the 7 % mark pre-tax and 4.5-5.5% post Tax with further expectation being a cut rather than any hike in Interest Rates.
( Retiring on Fixed Deposits is no more a Thought )
Being a proponent of Equity as an Asset Class the best way to end this post is.
You Have No Option Left – Buy Equities Now !!!
………..
If only Equity Investment was so Easy and Linear A 7% return in Fixed Income is almost guaranteed unlike an Equity Portfolio which can drop often by 10-20% and 60-70 % also in bear markets.
I would suggest asking more questions to yourself on your Asset Allocation or What to do with Cash or upcoming Cash Flows over next 2-3 years.
A simple question with no right answer !
What should be my allocation to Equity as an Asset Class as part of my networth , Should I increase it or Reduce it ?
There is no end to this Post – But rather a Start !!
Do comment with your views.
Happy Investing ,
Nooresh Merani
December 9, 2016
I do see a correction in all asset classes for coming time. Coz its bjp govt. And they bring correction always. But I am biasd towards equity. Sideways to down still.
December 9, 2016
Very well written and balanced post. On the Real Estate front, I believe land is a scarce resource in India and therefore, in the long term, the prices would follow the demand-supply equation. FDs lost their charm when MFs started offering quick online redemptions. Equity and generating income from positional investments is a good alternative though Reliance, HUL moves over the last year indicate otherwise. Since an average retail investor is not well informed and aware re these matters, MFs would keep benefiting. I would rather prefer a SIP in direct equity than MF to accumulate and benefit from the power of equities.
December 9, 2016
Very good article giving broad overview of the all the primary asset classes.
Just want to add that one more thing that added glitter to gold is import duty increase from 2% to 10%. As soon as this duty is brought back to earlier levels, corrosponding drop in gold prices will take place.
Thanks – Amit Aggarwal