Merely saving won’t do.

Habitual saving is an innately Indian trait. Most of us save a good part of our earnings. What’s a good part supposed to be? Typically, Indians save over 25% of what we earn. I do know people who save upward of 60% of what they earned for their entire work life. Actually, every one of us should increase the savings percentages as we earn more money. Old habits die hard and do a world of good. Why do they save so much ?

The fear of how we will take care of our children’s needs and our own retirement worried generations of middle class Indians who assiduously saved to survive their later years. Savings in those days principally was done in bank deposits. The money doubled once every 6 or 7 years and that was about it. The stock markets were not known to most people, there was just one mutual fund trust run by the government and the PPF was the only other investment avenue outside deposits and insurance .

Liberalization changed everything as the Market economy took over. Now, we have several mutual funds and private insurance players, numerous product options and wealth managers. Inflation has raised the cost of living way beyond what the data will tell you. Inflation data actually tells you very little. Services have doubled in cost every 3 years in the past 10 years.

If we saved our money in deposits and doubled it every 7 years, we will not have enough to provide ourselves even a modest lifestyle after 25 years. To beat inflation our money should grow in double digits. To achieve that, deposits, insurance and PPF simply won’t do. We need to invest sensibly in aggressive asset classes. Our money should double every 4 years. Equity is an asset class that will help us achieve higher returns. The art of choosing the right mix and timing one’s entry will ensure that the return expectations are met. But there is no escape from the need to invest in equity. It won’t do if we merely save. We must grow our savings quickly.

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