Growing up in a conservative middle class south India, I have often heard bad stories about people losing money in the stock market. “Their family was doing good, but then the father had heavy losses in the stock market,” was a common refrain. It was viewed akin to gambling. In general, any self-driven ventures were frowned upon and instead, salaried job paying a steady income was put on a pedestal. There was a lot of love for job security, comforts of a day-job like holiday pay, sick leave, and importantly, pension. Decades back, public-sector roles were most sought after, and today IT jobs have taken their place in being the mass favourite.

It is not true that this class of society does not aspire to be wealthy. They love money and the comforts that come with it, but are fine with slow accumulation over sustained periods of time. They slowly increase their materialistic aspirations as they climb their career leaders, and when they retire, they would retire much well-off than where they started. Talk of getting rich when no one’s looking. This delayed gratification is indeed a virtue in the world of personal finance – people who bide their time patiently without incurring huge expenditures tend to do well in the later years. However it is with the perception of risk that one may have an axe to grind.

What exactly is risk? For a situation to be risky, there needs to be two things – value and uncertainty. You take a risk, when something you value is put through uncertainty. Let us examine some common financial products to see if they fit this definition of risk.

• Fixed Deposits – Interest rates slightly higher than inflation, but the interest is taxed. The interest rates are periodically revised and typically decrease over time.
• Gold: Fluctuating price, like the stock market. Typically does well during bad financial period. Overhead charges during transactions if held in the form of metal, as opposed to certificates or funds. Risk of theft. More charges for protection.
• Pension Funds: Some taxation benefit applies to them, but most pension funds have significant exposure to the stock market.
• Real estate: Overhead charges during sale or purchase, Maintenance charges, Inconvenience cost of dealing with tenants and their problems. Housing loans can impede other growth investments. Interest rates can keep fluctuating.
• A Pot – The good old pot of treasure that’s hidden in weird places – the stuff of storybooks! If you are scared of the finance world, and think you can bury your money somewhere and retrieve as and when you need it – there are the threat of inflation, and to a smaller extent, demonetisation!

For a situation to be risky, there must be two elements – value and uncertainty. You take a risk, when you put something you value through uncertainty.

Thus, when there are risks from inflation, liquidity, taxation, overheads, etc, why do many people perceive the stock market to be riskier? A simple answer – Complexity. To look at the stock prices of a hundred stocks, moving up and down randomly is daunting. Neither is there any real rhyme or reason behind day-to-day stock movements nor any semblance of predictability. Don’t believe people who may tell you otherwise. But – as the nation grows and we progress as human beings – we can expect good businesses and entrepreneurs to succeed, and this will cause the stock market to perform well, and by far outdo the other listed financial products.

Finishing off with a simple analogy of repeated throw of a fair die. Your next throw can be any number from 1 to 6, all being equally likely. But try throwing 20 times and finding the average of the numbers. The average will be close to 3.5. Repeat with 100 times and check again. Even closer to 3.5! This is awesome – you are making a sure conclusion about a possibility involving many random events, namely the repeated throw of a die 100 times. We will leave the why to a technical article, but the parallel in the world of stock market is unmistakeable – no matter the number of stocks and the degree of their random movements, as long as the economy progresses well, good stock investments can give good returns and pave the way to your wealthy living. Of course, risks do exist, but they can be mitigated by careful planning and management.