Yes, the stock market registers bouts of zero growth or even negative returns, but in the long run, no asset class comes close to generating returns as high as equities. In the past 15 years, the price of gold has risen by 7.2 per cent, whereas oil gave 10.29 per cent returns. But the king of returns was equities, with the Sensex growing by 11.39 per cent in the same time period.
Equities is the best hedge against inflation which singed wallets as it rose from 4.95 per cent in January 2009 to 8.56 per cent in January 2010. This is why if you're investing for long-term goals such as retirement or your children's education and marriage, you cannot afford to ignore the corrosive effect of rising prices on the value of your assets.
The only effective weapon against inflation is equities. Consider this: for the period between January 2000 and January 2010, the compound annual growth rate (CAGR) for the Sensex was 12.31 per cent, which was 6.84 per cent more than the average Wholesale Price Index (WPI) of 5.47 per cent.
It seems that the era of high prices is here to stay. Therefore, you must create a portfolio of instruments that will provide sufficient returns after factoring in the rate of inflation. Equities is the only asset class that does so consistently. You can opt to invest in equities via stocks or mutual funds.
