1. Why should you invest? — Transcript

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1. 0:00[Music]
2. 0:08osceola mccarty the washerwoman was born
3. 0:11in 1908 to a single mother
4. 0:15save money osceola her mother would
5. 0:17frequently tell her as a child
6. 0:19these words stayed with her for the rest
7. 0:21of her life she would wash dry and iron
8. 0:25clothes all day till 11 pm and would
9. 0:28save the money in her doll buggy coin
10. 0:31after coin her savings grew so on one
11. 0:34fine day osceola walked into the first
12. 0:36mississippi national bank to open a
13. 0:39savings account in the early 1900s
14. 0:42it was a tiny move but it was a step
15. 0:46forward she would stroll to the bank
16. 0:48whenever she had the opportunity to
17. 0:50deposit her funds
18. 0:51she also lived through world war one the
19. 0:53great depression and continued to pile
20. 0:56up the money to save while going through
21. 0:58such hardship do you know what happened
22. 1:01after decades
23. 1:02she had a stunning
24. 1:04280 thousand dollars in her bank account
25. 1:08by the time she retired in 1995. for a
26. 1:11washer woman or even a white collar
27. 1:13professional that's a significant amount
28. 1:15to have for their retirement account she
29. 1:17made so much money that she kept enough
30. 1:19for herself while donating a hundred and
31. 1:22fifty thousand dollars to scholarship
32. 1:24foundation for underprivileged
33. 1:26youngsters osceola mccarty learned one
34. 1:29right thing and practiced it her entire
35. 1:31life in this module we will learn all
36. 1:34the basics you need to know before you
37. 1:36make your first stock market transaction
38. 1:38and why should you even invest in stocks
39. 1:41in the first place hi i'm pratik singh
40. 1:43the ceo and founder of learnup.com and
41. 1:46welcome to the zerodhar varsity video
42. 1:48series so let's get started
43. 1:51[Music]
44. 1:59so let's assume that you earn
45. 2:0250 000 rupees a month
46. 2:04right here
47. 2:05and you spend 30 000 rupees a month on
48. 2:09various expenses that means you're
49. 2:10saving 20 000 rupees a month also let's
50. 2:14assume the following that your employer
51. 2:16gives a 10 salary hike every year the
52. 2:20cost of living goes up by eight percent
53. 2:22a year
54. 2:23you are 30 and you plan to retire by 50
55. 2:26it gives you about 20 more years to earn
56. 2:29you don't intend to work after you
57. 2:31retire your expenses are fixed and don't
58. 2:34foresee any other expenses
59. 2:36and the balance 20 000 rupees is hard
60. 2:39investable cash which is this stack
61. 2:41right here so this means you have six
62. 2:43lakh rupees total that you're earning a
63. 2:45year the expense is 3.6 lakh rupees and
64. 2:49the cash retained is 2.4 lakhs now if we
65. 2:52continue to earn and save for 20 years
66. 2:55you'll have 1.8 crore rupees
67. 2:58and you probably suppress desires like
68. 3:01buying a car a nice house or a fancy
69. 3:03vacation
70. 3:04and at eight percent of yearly increase
71. 3:08you will only have eight years of money
72. 3:10left in the bank i mean what about the
73. 3:13rest of your retirement could there be a
74. 3:15way that at retirement you have a larger
75. 3:18corpus
76. 3:18larger than this hopefully so you can
77. 3:20spend the rest of your life more
78. 3:23comfortably now let's take the same
79. 3:24example and instead of letting that cash
80. 3:27sit idle let's invest it in an asset
81. 3:29that returns 12 percent per annum so i
82. 3:32have an excel sheet over here and in the
83. 3:35first example like we saw you have a
84. 3:37yearly income of six lakhs your yearly
85. 3:40expense is 3.6 and you're saving 2.4
86. 3:43lakhs and you do this for 20 years
87. 3:45you'll be able to save 1.79 crores about
88. 3:491.8 crores
89. 3:51in the next example what we've done is
90. 3:54everything is the same except the
91. 3:56savings are invested at 12
92. 3:59every single year and this is compounded
93. 4:02and you can see by the 20th here
94. 4:04it's actually 4.27 crores this is a
95. 4:08staggering 2.4 times of what return you
96. 4:11get versus just saving the money
97. 4:14so it's clear that investing definitely
98. 4:17makes more sense than letting that cash
99. 4:19sit idle but the question is where do
100. 4:22you invest what are the asset classes
101. 4:24out there let's explore that
102. 4:26so different asset classes have
103. 4:28different risk and return profiles and
104. 4:31the returns that we'll be discussing now
105. 4:33for each asset class is from 2009 to
106. 4:362021. it's about 12 years of data i have
107. 4:40real estate here as an asset class there
108. 4:42is fixed income there is gold and we
109. 4:45also obviously have equity a fixed
110. 4:48income asset is basically an asset where
111. 4:50you have a principal amount that you
112. 4:52invest and then you receive an interest
113. 4:54on a quarterly yearly or a six monthly
114. 4:57basis a fixed income could be say a
115. 4:59government bond or maybe even a fixed
116. 5:01deposit where you put an amount with the
117. 5:03bank and the bank gives you an interest
118. 5:05rate based on how long your tenure is so
119. 5:08without getting into the details roughly
120. 5:10a fixed income asset like a five to ten
121. 5:13year government bond which is a fixed
122. 5:14income asset gives about five percent
123. 5:17returns a year now just like we walk
124. 5:19into a bank and create a fixed deposit
125. 5:22corporates also have fixed income
126. 5:24instruments called bonds some other
127. 5:27fixed income instruments are
128. 5:29bonds issued by the government bonds
129. 5:31issued by the government-owned
130. 5:33enterprises like ongc pfc or rac and
131. 5:37bonds issued by corporates after fixed
132. 5:40income we have equity there's no
133. 5:42guarantee when you invest in the shares
134. 5:44of a company but you profit if the price
135. 5:47of the shares increases over a period of
136. 5:49time you can buy the shares of any
137. 5:52company listed on the exchange we have
138. 5:54two major exchanges in the country
139. 5:56national stock exchange and bombay stock
140. 5:58exchange
141. 6:00nifty is a good way to find out what the
142. 6:02returns of equity are because it's
143. 6:05basically a weighted average of the top
144. 6:0750 stocks
145. 6:09nifty has given roughly a 14 return in
146. 6:12this period between 2009 and 2021. some
147. 6:16of india's best run companies have
148. 6:18returned 20
149. 6:19year on year over very long periods of
150. 6:22time but identifying these companies
151. 6:25consistently for your portfolio takes
152. 6:27skill and patience
153. 6:29here are some companies we've removed
154. 6:30the names of the companies obviously so
155. 6:32you can see the power of long-term
156. 6:34investing in action here
157. 6:36[Music]
158. 6:38the next asset class is real estate
159. 6:41investing in real estate involves buying
160. 6:43selling of land commercial or
161. 6:45residential real estate and there are
162. 6:47two ways to earn from real estate either
163. 6:49there is rental income and the second
164. 6:52way is capital appreciation which is the
165. 6:54asset itself grows so you bought an
166. 6:56apartment for one crore and then you
167. 6:58sold it for 1.2 crores giving you a
168. 7:00profit now since this is such a
169. 7:02complicated transaction requiring a lot
170. 7:05of cash up front and every area has a
171. 7:07different risk and return profile we
172. 7:09can't really give you a risk return
173. 7:11profile of real estate itself and then
174. 7:14we have gold the return for gold has
175. 7:17been about nine percent from 2009 to
176. 7:192021 and the only way to buy and invest
177. 7:22in gold is you could invest in physical
178. 7:24gold that is buying gold bars or invest
179. 7:27in etfs or sgb bonds
180. 7:30so let's quickly compare the asset
181. 7:32classes for fixed income at a 5 return
182. 7:35our corpus would have grown to 2.48
183. 7:37crores for equities which is at 14
184. 7:40the corpus would have grown to
185. 7:425.07 crores and gold and silver at nine
186. 7:46percent return would have given 3.3
187. 7:48crore rupees so clearly equities is the
188. 7:51winner by far from all these asset
189. 7:54classes now since we've got straight to
190. 7:56the point that equities generates the
191. 7:57most returns it makes sense for us to
192. 7:59explore how we can invest in equities
193. 8:02right but before we do that let's
194. 8:04understand the ecosystem where equity
195. 8:06sits that's what we'll do in the next
196. 8:08video
197. 8:09key takeaways from this video are
198. 8:17[Music]
199. 8:23[Music]