Thursday Trivia – The wishful need of GUARANTEED returns

Thursday Trivia – Why and how to create an emergency fund
June 11, 2015
Thursday Trivia – 7 behavioral biases that stops you from making money
July 2, 2015

Thursday Trivia – The wishful need of GUARANTEED returns


I had an intriguing discussion yesterday with a very learned and qualified person. He has seen the ups and downs of equity markets, being in finance he has closely tracked the manipulation and scams that have hit the country. We were discussing how HDFC bank has managed to grow @35% approximately and kind of returns the stock has generated, to understand the power of equity. He said I am not greedy and just want to earn 15% pa, let HDFC bank GUARANTEE that to me and take rest of the profit. Whoa nice thought I said, you claim not to be greedy and ask for 15% guaranteed return, all in the same breath. But that lead me to think the curious case of GUARANTEED returns.

Why do we want guaranteed returns? So many products and campaigns have been built around this human want of survival. Capital protection and guaranteed returns. People are ready to lose their purchasing power to inflation and trade it off with SAFE investments. “I am ok even with 4% return in L*C cause its safe and backed by government” said a very seasoned business man to me. We just want things to be predictable, but I bet that’s not in all the case.

With a strong believe that equities are a great asset class to beat inflation, I started wondering what if??


GUARANTEED rate of hike in fuel prices, and subsequently in auto and taxi fares

GUARANTEED rate of hike in medicines, hospital charges and doctors consultancy fees

GUARANTEED rate of hike in prices of vegetables, pulses and other food staples

GUARANTEED rate of hike in school fees, books

Well that seems scary to me. Also this was only on the spending side. India as a country and its people has experienced a phenomenal growth in last decade (also reflected in our equity markets). We have all seen salaries gone up in multiples. Many of my clients have experienced salary going up by 5 – 7 times in last 10 years (I am sure that’s very common). We all know that this growth has not happened linearly. But imagine, if the market forces did not play and salary increment was GUARANTEED. Every single salaried person would have lost the chance to ride this golden wave.

If I have to guarantee a rate at which I will hike the pocket money of my son, I will make sure I will commit and convince him for as low as possible. Guaranteed means safe but it can (surely) also mean low.

Well, so I am grateful for the chaos in markets, and that the returns are not GUARANTEED. Market forces do their role and disciplined investors are awarded for their courage to stand out of the crowd and for their belief in the economy. It’s so great that I am not forced to pay for things getting costlier at a guaranteed rate every year. It’s so great that as an entrepreneur I have a choice to grow at a rate which possibly no one can guarantee. I believe that we have an opportunity to experience a whole new level of growth and limiting the whole process by guaranteeing will kill it. So sit back and enjoy the ride, but make sure the safety measures (financial planning) of your ride are being checked.

As Warren buffet has said “The Stock Market is designed to transfer money from the Active to the Patient.”

In summary I just want to say that every asset class has its pros and cons, don’t be attached to one. It would be great to have a financial goal and have your investments diversified to achieve it.

Do write your comments and one thing that you never want to grow at a GUARANTEED rate.


Leave a Reply

Your email address will not be published. Required fields are marked *