How much return can I expect from equity after 15 years of investing?

Summary

In this video, P from Frean Cal addresses the uncertainty of long-term equity returns, emphasizing that no one can predict exact outcomes. He dispels common myths about guaranteed returns based on inflation and GDP growth, highlighting the importance of effort in investments. Historical data suggests equities have a strong chance of beating inflation, making them a preferable choice over fixed income options. However, P warns against expecting high returns based on short-term performances, advocating for reasonable expectations and diligent portfolio management to avoid disappointment.

Takeaways

• 😕 Investing in equity over the long term does not guarantee specific returns, and no one can predict the exact outcome.
• 🤔 Common estimates like 'inflation plus GDP growth' for returns are crude and not reliable for actual investment decisions.
• 🙅‍♂️ There is no need to know the exact return from equity investment because, like many aspects of life, there are no guarantees.
• 💼 Effort and management are required to make investments work, similar to other life endeavors such as education and marriage.
• 🚫 Fixed income investments may offer guaranteed returns but are likely to fail in the long term against inflation.
• 📊 Historical data from the S&P 500 suggests that equity investments have a reasonable chance of beating inflation over time.
• 🌐 It's important to consider long-term market history, such as the S&P 500, rather than the relatively young Indian market.
• 📉 Equity returns can vary widely, with the potential to be extremely positive or negative, and sometimes even uncalculable.
• 💡 The reasonable chance of equity beating inflation is a compelling reason to invest, despite the lack of guaranteed returns.
• 🤑 Expecting high returns from equity based on short-term performance is unrealistic and can lead to disappointment.
• 🧐 It's crucial to manage expectations and understand that equity can win as an asset class while individual investors may not meet their personal return expectations.

Q & A

What is the main topic discussed in the video script?

The main topic discussed in the video script is the unpredictability of returns from equity investing over the long term and the importance of managing expectations when investing in equities.

Why does the speaker state that no one can know the exact return from equity investing?

The speaker states that no one can know the exact return from equity investing because it is influenced by numerous variables and market conditions that are inherently unpredictable.

What does the speaker suggest as an alternative to relying on crude estimates for equity returns?

The speaker suggests that instead of relying on crude estimates, investors should understand that there are no guarantees in investing and focus on the historical tendency of equities to beat inflation as a reasonable chance of success.

Why does the speaker argue that guarantees in most aspects of life are not to be expected?

The speaker argues that guarantees are not to be expected in most aspects of life because success often requires effort and management, similar to how one must work to make a marriage or a job successful.

What historical data does the speaker refer to when discussing the performance of equities?

The speaker refers to the historical data of the S&P 500, which has over 122 years of market history, to illustrate the performance of equities over time.

How does the speaker differentiate between the historical performance of the US market and the Indian market?

The speaker differentiates by stating that the US market has a longer history of over 122 years, while the Indian market is much younger with only about 45-46 years of history.

What is the speaker's view on fixed income investments compared to equity investments?

The speaker's view is that fixed income investments may offer known returns but are likely to fail in beating inflation over the long term, whereas equities offer a reasonable chance of success with proper portfolio management.

What is the caveat the speaker mentions regarding the historical tendency of equities to beat inflation?

The caveat is that while history shows equities have a reasonable chance of beating inflation, it does not guarantee that equities will always meet the specific return expectations of an investor.

Why does the speaker advise against expecting high returns like 15% or 18% from equities based on short-term performance?

The speaker advises against this because equities may still win as an asset class by beating inflation, but an investor who expects such high returns may fail if they invest less or are disappointed, thus losing out in the long run.

What is the final piece of advice the speaker gives to investors regarding their expectations from equity investments?

The final piece of advice is to expect less and manage one's portfolio with a reasonable chance of success, rather than expecting guaranteed high returns, to avoid disappointment and potential loss.