Fixed Deposits (FDs) offer stability but generally lower returns compared to other investment options like the stock market.
Fixed Deposit (FD):
Low Risk: Principal amount is secure.
Low Returns: Typical interest rates are around 6-7% annually.
Example: Rs 5 lakhs in FD at 7%:
After 20 years: Rs 5 lakhs grows to about Rs 1,86,848.
Less impactful against inflation.
Stock Market:
Higher Risk: Value can fluctuate due to market conditions.
Higher Returns: Historically, stock markets have returned around 15-18% per year.
Example: Rs 5 lakhs in the stock market at 15%:
After 20 years: Rs 5 lakhs grows to about Rs 81.41 lakhs.
Example: Rs 5 lakhs in the stock market at 18%:
After 20 years: Rs 5 lakhs grows to over Rs 1.36 crores.
Power of Compounding:
In FD: Earnings are smaller, so the compounding effect is less spectacular.
In Stock Market: Higher returns dramatically increase the compounded amount over time.
Diversification:
Rich Investors: Often diversify their portfolios to balance risk – combining FDs, stocks, bonds, real estate, etc.
Wealth Building: Accepting risk in the stock market can lead to significant growth.
Real-World Impact:
Market Fluctuations: Yes, it involves experiencing ups and downs.
Some years might see negative returns.
Other years could witness significant growth (20-40% or more).
Historical Performance:
Over the last century, stock markets have averaged higher returns than FDs.
This trend reflects the potential of equities to outpace inflation and generate wealth.
Strategy for Success:
Stay Invested: Long-term investment is crucial to overcome market volatility.
Regular Monitoring: Adjust investments based on market conditions.
Conclusion:
While Fixed Deposits offer security and predictable income, embracing calculated risks in the stock market can lead to substantial wealth accumulation, as your examples illustrate.
Excited to learn from the insights of @IrshadMushtag, writer, investor, entrepreneur & Founder of MI Securities! Connect for valuable financial advice at misecurities@bp.sharekhan.com.
