Benefits of Middle to Long Term Investment In Share Market
In previous few years, there has been a spurt in gold and real estate investments. And during this period financial savings have reduced. The primary reason for this is the return on investments from gold and real estate which was very high as compared to other savings options.
There were many reasons for high ROI from gold and real estate such as:
- After financial crisis of 2008, interest rates in western countries had gone down. Because of this, cash increased in the banking system resulting in increased cost of gold. In September 2008, gold was trading at 780 dollars/ounce whereas in September 2011 the rate increased to 1900 dollar/ounce.
- Many local factors also affected the economy.
- Due to higher subsidies, purchasing power of the people was going up. Tax to GDP ration was also decreasing. Along with that, in rural areas living wages also increased.
- However due to weak agricultural growth, supply of the food items could not meet the demand.
- Industrial and infrastructure projects were also getting delayed. All these factors resulted in increased inflation rate. This impacted the real estate rate which then went negative resulting in people investing less money in financial assets. Due to weakening of rupee, pressure on inflation also increased.
But this situation is now changing. Economic growth of United States of America is improving which can surge interest rates over there. This is the reason why the price of gold has now decreased from 1900 Dollar to 1300 Dollar.
In India, current account deficit has decreased and Indian rupee has stabilized. More and more infrastructure projects have been approved or have been cleared which will give start to the investment cycle. Also the commodity prices are expected to come down.
With new government in India, these conditions are expected to change fast and experts are hoping that subsidy prices will be reduced and also supply of necessary things will be improved. Experts are also expecting that the new government will ease the existing tax structure and will increase the range.
Looking at the current market scenario, investing in gold seems to less advantageous. Share market is at the same point where it was 6 years before. Profit growth of the companies is at their lowest in the last 18 years. Interest rates are at its peak and economic growth is expected to improve. Most important point is P/E of the market is below the long term average. When you invest at lower level than the average market’s P/E, you’ll get good return in 3-5 years. That is why I feel, increasing the investments from medium to long term perspective in the share market is beneficial.
Also read: How Share Prices Rise and Fall