Why Successful Investing Goes Beyond Seeking High Returns!

Published: January 6, 2024 at 6:00 am

Investors often fixate on the returns of their investments. Some prefer higher returns and are willing to take on more risk, while others prioritize a guaranteed return with no threat to their principal investment. However, there are more aspects to consider in investing than just the returns.

While it could be argued that real returns (those exceeding inflation) are crucial for achieving long-term goals, this is just one aspect of the bigger picture. I often utilize slides in DIY investor meetings to understand better “investment return”.

The scenarios presented below, and many others, can be evaluated by investors with the freefincal Visual Goal Planner Calculator and nine other tools now available on the SEBI investor education site.

Also see: SEBI adds nine freefincal calculators to its investor education website. And, Freefincal’s Cost of Retirement Delay Tutorial is available at SEBI Investor Education Portal.

Think about a product, service, or fee that currently costs 10L. If the inflation rate is at 8%, as displayed below, the cost of this item will rise over time, represented by the blue line. The green line corresponds to the growth of the monthly investment sum at the average yearly interest rate, as previously indicated.


Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
Goal-based investing example 1
Goal-based investing example 1

After 19 years, the value of the investment will overtake the cost. Meaning we would have to wait 19 years to make the purchase. The real return (approximately) in this scenario is 12% -8%  = 4%. Now, what if the inflation was 10% instead of 8%?

Goal-based investing example 2
Goal-based investing example 2

When inflation increases to 10%, purchasing the same investment will take 30 years.  The return is still above inflation, but this does not help much. The purchase is significantly delayed. Why? Now consider the graph below.

Goal-based investing example 3
Goal-based investing example 3

More than double the investment, with less than half the return, a real return of about -2% produces the same result as a real return of +4%: purchase after 19 years. What if we invest like we would expect a real return of -2% in an instrument that would give us a positive real return?

What if we invest 10200 monthly in an instrument that can potentially deliver double-digit returns? Unfortunately, many do the opposite. They invest less than the required amount (10,200) in instruments that offer negative real returns.

Loss of capital: Loss does not always mean a negative balance or an actual decrease in value.

Goal-based investing example 4
Goal-based investing example 4

The result: permanent loss of capital (notice the gap between the curves at 19 years). I use the word permanent because these people fear notional short-term losses.  They may never be able to make the purchase. Not investing enough is an ailment that can affect those who hope to earn a real return too!

Goal-based investing example 5
Goal-based investing example 5

A real return of +2% means nothing if one does not invest enough. There is yet another side to this story.   Those who can only invest little (say 1500 pm) cannot take excessive risk to get a higher real return. This scenario can be produced in an Excel sheet (as below) but is unlikely. At least, it is pretty uncommon.

Goal-based investing example 6
Goal-based investing example 6

When faced with an expense (planned/unplanned), the primary concern is the available funds. At such times, the return we have earned and its relation to current inflation rates become immaterial.

The fundamental aim of the investment is to build sizeable wealth, not to outperform inflation or achieve a real return. It’s crucial to understand the relevance of inflation and devise strategies to counter it:

1) Investing in high-growth assets capable of generating returns that outpace inflation.

2) Allocating substantial capital to investments, even those that assure post-tax returns lower than inflation.

You can beat inflation by investing in FD/RD or endowment policies by simply investing enough. See here for an example: Can I Plan My Retirement With Recurring Deposits and Fixed Deposits? Or a real-life example: How I achieved financial independence without mutual funds or stocks.

Do share this article with your friends using the buttons below.

🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
Follow Freefincal on Google News
Follow Freefincal on Google News
Subscribe to the freefincal Youtube Channel. Subscribe button courtesy: Vecteezy.
Subscribe to the freefincal Youtube Channel.
Follow freefincal on WhatsApp Channel
Follow freefincal on WhatsApp
Podcast: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth! 
Listen to the Lets Get Rich with Pattu Podcast
Listen to the Let's Get Rich with Pattu Podcast
You can watch podcast episodes on the OfSpin Media Friends YouTube Channel.
Lets Get RICH With PATTU podcast on YouTube
Let's Get RICH With PATTU podcast on YouTube.

  • Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
  • Have a question? Subscribe to our newsletter with the form below.
  • Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.

Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!

Explore the site! Search among our 2000+ articles for information and insight!

About The Author

Pattabiraman editor freefincalDr. M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter, Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course!  Increase your income by getting people to pay for your skills! More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   
Our new book for kids: “Chinchu gets a superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both the boy and girl version covers of Chinchu gets a superpower.
Most investor problems can be traced to a lack of informed decision-making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it and teach him several key ideas of decision-making and money management is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & it's content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)