Before we wish each other Happy New Year 2019, let us wish each other Happy Old Year 2018! Because it has been a very happy year for low risk investors, investing in banks, post office, etc.

After a very long time the popular media is acknowledging that low risk investments give better returns as compared to high risk investments.

Mint in a front page article on 31 Dec 2018 analysed the returns for a number of low and high risk investments.

The returns on NIFTY 50 ( a basket of 50 companies traded on National Stock Exchange) reported a reported a return of 2.69 %, while NIFTY Midcap 100 (a basket of 100 mid cap companies) reported -16.05 % (yes minus 16.05 %). SENSEX (a basket of 30 most-traded companies traded on the Bombay Stock Exchange) reported a return of 1.89 %. So much for shares and equity mutual funds!

What about Debt? The situation is no different for debt. Mint reports that 10-year bond yield, fell from 7.337 % to 7.263 %.

As compared to the above volatile investments, the fixed income securities in the low risk category did much better. The post tax return on PPF was 7.7 %, NSC was 7.78 %. MIS scheme of post office was 7.43 %. The average fixed deposit rate of banks for 1 to 3 years’ period was 6.8 %.

And what was the inflation rate in the same period? 4.74 %.

So who beat the inflation? High risk investments or low risk investments? Inflation will never be more than the low risk rate of return in the long run. If anything it can be more than rate of return on high risk investments. I will explain that in another article. But for now please use the data mentioned above in your selling.

The main reason for the low returns on high risk investments is volatility of the market prices. Both the share markets and the debt markets experienced considerable volatility during 2018. That is to say prices have moved up and down considerably and a number of times. You may find it interesting to know that the SENSEX during 2018 fell 116 times out of 244 trading sessions held at Bombay Stock Exchange.  With each drop, the investor value is lost and it takes a lot of growth for the lost value to be restored. The volatility is likely to continue in 2019.

So here is wishing all of you a happy new year focusing on selling ethically and correctly!

Sell Risks Not Returns