#AskUsAnything: Timing the market, investing in real estate, is FD any good, and more

#AskUsAnything is our series where we answer questions about investing and personal finance. Probably they popped up in your head too, but you didn’t know whom to ask.

I am 30 years old, unmarried and have no loans. I have a ₹10.5 lakhs portfolio which is already down 2 lakhs in the last two months. With my extra savings, is it the right time to buy more, or should I wait until the markets fall more?
Chetan Prakash, Gurgaon

First, the long answer. You will almost always be better off with more time in the market, as opposed to trying to time the market.

Statistically speaking, perfectly timing the market is nearly impossible. No one can really accurately predict if the markets will fall further, when and by how much.

The smarter strategy is to make absolutely no assumption and invest as soon as you have the money. Our own research shows that investing immediately works better about 60% of the time.

The short answer? Don’t worry about market volatility. Invest your savings right away.

I just landed my first job, and I want to start investing my savings right away. What’s the minimum I should save up, how should I plan, and where do I invest?

Vidya Krishnan, Pune

Congratulations! And it is amazing to know youngsters who start saving and investing this early in their career. Keep in mind, that no matter how complicated it is made out to be, investing is actually easy.

All you need to do is:

1/ Invest as much as you can, and as soon as you can. Use the full power of compounding. The earlier you invest, the more you power your investments.

2/ A good rule of thumb is to save and invest 20% – 30% of your income.

3/ Invest in index funds. It is better than investing in individual stocks. It keeps you free from worries of tracking individual companies because someone else is doing it for you! Index funds are cheaper and are more likely to give you good returns.

4/ Have a 10 year + view. Equity mutual fund returns have less variability the longer your holding period.

Does it make sense to invest in a residential property in Bangalore, or should I add to my SIPs and stay on rent forever?

Girish ML, Bengaluru

Let’s do math with some basic assumptions here. Say you are considering a 2BHK flat in Bangalore, that costs ₹60 L. You will tap into your savings to pay ₹9L upfront as 15% down payment. You take a loan for ₹51 L. At 8% interest, you will pay about ₹43,000 per month.

In addition, you will pay for interiors from your savings, a maintenance of ₹1,500 per month and other expenses of maintaining the home. For simplicity, let’s assume that these additional expenses get canceled with the income tax benefit you get on the loan. (Technically, they don’t because maintenance charges will always increase, and the tax benefits will go down over the years)

At the end of 20 years, you would end up paying ₹1.1 crore to own the home, in a now ageing society, which probably is now worth about ₹1.5 – ₹1.8 cr. And don’t forget living with the debt burden for 20 years.

What happens if you stay on rent?

On rent, a similar flat may cost you about ₹20,000 per month all inclusive. With a 5% year-on-year increase in rent, you end up paying about ₹80 L over 20 years.

The initial ₹9L you would have used as downpayment? You invested it as a lump sum in an equity fund. And you have a monthly SIP of ₹23,000 (considering you are paying 20k in rent already).

What would this be worth in 20 years? Assuming 12% annual returns, it will be worth ₹2.3 cr.

Important to know that buying a home is not a financial decision, it is really an emotional one. So what will you do?

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Of late, I have seen many “experts” and “influencers” go on about how FDs are a horrible investment idea. Is it really true?

Anurag Kumar, Ahmedabad

Remember what they say about the eggs and the basket? Always diversify your investments. Your market-linked investments have a potential for a great upside, but they come with high risks too.

Fixed Deposits give you the assured returns, because they are not linked to market performance. Investing a portion of your money in fixed deposits makes perfect investing sense in the following scenarios:

1/ Parking your emergency Funds in FDs. Get better returns than the savings account, and you can withdraw your money within 24-48 hours when needed.

2/ When you need funds within 3 years. For shorter time horizons, the market volatility risks are higher.

3/ For senior citizens. They get the benefit of higher interest rates, sometimes upto 75 basis points.

4/ What’s more, at that age, it doesn’t make sense to take the risk of market upheavals. Investing in non-cumulative FDs also gives a monthly income with tax benefits for seniors.

It is advisable to keep 20% of your investment in FDs.

5. I am 41 yrs, and want to move beyond FD and PF investments. Should I go for stocks or invest in equity funds?

Harikumar S, Coimbatore

Investing in stocks is easy, managing them is not. Ask yourself the following questions:

1/ Are you comfortable with the risks involved with investing directly into equities?

2/ Do you know the track record and trust the strategy of those who will advise you?

3/ Do you have the time to do the required research and build your own investment hypothesis?

If your answer to any of the above is a NO, you should allocate the majority of investments to mutual funds. Mutual funds give you the benefit of diversification, offer convenience and come with lower costs.

To learn direct stock investing, take small steps in equity markets. Start with a small amount, do the grunt work. Familiarise yourself with the markets and develop your skills as an investor. You can then slowly grow your allocation in direct stocks.