Sensex (Equity) vs Gold vs Silver vs Bank FD

A lot of people ask me: “I want to invest money, which option should I consider? Sensex (Equity) vs Gold vs Silver vs Bank FD.” Since there are ample of options available, people gets confused, or ignore few options and often take bad investment decision because of lack of knowledge.

Today, I’m going to address a simple problem and it’s going to give you a lot of value in long term if you take the right step. So don’t miss the end.

I’ve done an analysis of Sensex (Equity) vs Gold vs Silver vs Bank FD from the start of 1980 to 2020. You be the judge on which option should you consider for your future.

We Indians love safety, gold, fixed deposit is the first choice for many Indians to “invest”. However, those with an exposure to stock market would know the kind of returns you may get from investing in equity. I’m sure most of you would have never imagined the differences in return which I’m going you to show you in this post today.

Ready? Let’s get started!

I’ve kept the base year as 1980. Let’s assume you invested a specific amount one-time (lump sum) at the start of 1980, what would it become after 40 years (at the start of 2020)?

We are using 4 different investment options (Equity, Gold, Silver, Bank & Fixed deposit) which are most commonly used in India. For equity, I’ve used the oldest index in India which is Sensex. Hence, we’re assuming that you have invested in any random Index Fund that replicate Sensex’s return. Hence, the growth in Sensex would be similar to the growth in your Index Fund’s portfolio.

To start this analysis, let’s consider there are 4 friends (Able, Bravo, Charlie, Dino) who choose one option each out of these 4 different investment option. All 4 start their investment journey at the age of 20 when they start working and wants to stay invested until their age of retirement i.e. 60. Hence total 40 years of investment horizon.

Four friends and their investment

The first friend – Able don’t like taking risk and want more safety. He has a lot of emotions when it comes to money hence goes for the bank fixed deposit option where he gets a fixed return of 7.5% interest. He invests a one off amount of Rs.150.

The second friend – Bravo understands that he needs to take risk to create capital and wishes to remain committed until the end of his 40 year tenure. He invests with the minimum amount of Rs.129 with no guarantee on rate of return.

The third friend – Charlie don’t want to take risks and wishes to stay with his traditional method of investing in gold which his parents have taught him. Hence he invests Rs.133 in Gold and purchase 1gm of 24k.

The forth friend – Dino doesn’t want to take the risk of investing in equity, he thinks silver has more potential to give more return in long term as compared to gold. Hence he invests Rs.230 and purchases 100gm of sterling silver.

Result

All four individuals have different amount invested in different type of investment vehicle. Let’s see how their return would look like at the time of their retirement.

Ready? See the below chart to get an idea.

Sensex (Equity) vs Gold vs Silver vs Bank FD, where Equity is counted as sensex for India.
Return of investment since 1980 to 2019. Sensex (Equity) vs Gold vs Silver vs Bank FD.

As you can see the green line is on a roller-coaster ride and all the 3 other options are nowhere close. The green line is for Sensex where Bravo has invested his Rs.129 as one time investment. Despite of several market crashes (in 1990, 2000, 2008), the return is still quite high as compared to other options.

Let’s look at the numbers and how much percent each individual made.
Historical price of Gold vs Silver vs Sensex points vs Bank FD
  1. Able invested Rs.150 in a Fixed Deposit Account and got Rs.2706 at his retirement and made an annual profit of 7.50% CAGR which was already promised to him.
  2. Charlie invested Rs.133 in Gold purchasing 1 gram of 24k quality and now the value of this gold is Rs.3800.
  3. Dino invested highest which was Rs.230 to grab 100 gram of sterling silver which is worth Rs.4600 now.
  4. Finally, Bravo invested minimum amount out of all the friends which was just Rs.129 in an Index Fund which replicate’s the return from the Sensex

Forget about some Mutual funds which beat the market and Sensex. He invested and stayed committed despite of many recessions and market hiccups.

He got a whopping amount of Rs.40560 at the retirement. Had he invested a little more for ex. Rs.258 then he would have got Rs.81,120.

If we analyze further, we’ll see that the Index fund (Sensex) managed to give return of just above 15% which is only double of 7.50% from fixed deposit. However, there is a difference of Rs.37,854 which is 15 times more than the returns of fixed deposit. How’s that possible?

That’s the power of compounding for you. Even a small change of 1% or 2% in return is going to make a huge impact in the long run.

Conclusion

Just think about it, Bravo didn’t had to acquire any degree in finance or read financial news and reports, time the market, understand the balance sheet or nature of businesses, worry about buying and selling stocks, nothing. He only invested a small amount once and kept it to work for long term.

The main problem why people mostly lose money in stock market is because they don’t follow the basics of investment. When you want to buy a house or gold, you do all the research and buy only when you know the price is low (or valued reasonably).

However, you’ll rarely see someone investing in stock after doing the research and understanding its intrinsic value. People invests in stocks based on someone’s suggestions, recommendation when the market is already performing well and the stocks are overvalued. As soon as there is any bad news or recession then they sell their holdings at cheap price and move the capital to gold or fixed deposit by taking a loss.

Hence, its very important to have disciplined mindset and enough knowledge while investing. One should always think ahead of time as an investor rather than just a speculator. The sad part is nobody wants to wait that long. We want everything now, we want quick fixes, we want guarantee. If it was guaranteed, then everyone would do it. It’s the risk factor that only wise people can take. I’m not encouraging you to sell your house and put all the money in Index Fund or Mutual fund. However, an SIP of small amount (like 10% of salary) put aside every month can do wonders in long term.

Time in the market always beats timing the market.

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