This is why millennials in Pakistan should think about investing asap

The year was 1998, in my primary school days, my mom used to give me 10 rupees lunch money. My favorite lunch every day was 2 samosas and 2 Éclairs. Now in 2019, the same lunch would cost above 60 rupees. The house in DHA that my parents were able to buy so easily of their little business, it would take me 40 years of savings with at least 50,000 a month and even then I would only be able to buy that said plot.

Time has changed!

We can no longer afford to have several kids study in prestigious schools as we ourselves did. My monthly fee of A levels at Beaconhouse used to be 10,000 and these days fee of a first grader goes as high as 20,000. Inflation, unemployment, lack of opportunities all bundled up with uncertainty in every direction. How does one even begin to think about getting married, having kids, owning a car and a house anymore?

Do you want to have a home?

As I approached 30 my mind matured from wanting to have a 4 Kanal house in DHA with sports cars parked in the garage to a little house and a car at the outskirts of the city. I began to realize that just saving to buy a house anywhere in the city is a race I would never be able to win. If a plot is for 35 lakhs today, I would need about 6 years of savings to acquire that much amount and in that much time, that same plot might cost more than 50 lakhs.

Banks are not very helpful

I approached multiple banks to check what my options were in terms of home loans or investments options. Apparently, they don’t even consider you for any large financing till you are making 6 figures a month, they charge exorbitant interest rates but if you go to them as an investor, they usually want to lock your money for years only to give you about 3 to 5% returns a year. Taking our almost double-digit inflation into account, your money actually loses its value, the longer it stays invested in a bank.

Initially, my only real options of growing my investment at a reasonable rate were stock investment or trading, both of which I had no knowledge or time for. Seeing the risk involved in our tumbling economy, I decided to continue my search. After a lot of researching, I finally stumbled upon mutual funds.

Mutual Funds

Mutual funds are managed by experts who help everyday people just like you and me in achieving our goals and dreams as per our desired risk appetite. Between my full-time job, hobbies, and housework I have no time left in a day for any side hustle. Mutual funds let you sit at home comfortably while experts at asset management companies (AMCs) make money for you.

I ran the numbers of a couple of mutual funds to see how much time I would need to buy a plot if I invest my money in an AMC vs a traditional bank account. If I decide to play safe and only invest in the money market or income funds then I should have my plot in only 4 years instead of 6. By the time I invest roughly 28 lakh in mutual funds, my compound interest would have grown and earned me the remaining 7 lakh to reach my goal of 35 lakhs.

Compound interest in mutual funds help you grow your money the longer you keep it invested. In perspective, let’s say I wanted to buy a house costing 70 lakh, normally I would need to save for almost 12 years to accumulate that much wealth. If I want to save that much with the help of low-risk mutual funds, then I would have to invest only 45 lakh, while my compound interest would have earned the remaining 25 lakh in only 8 years. With a proper mutual fund portfolio, you could build your house and buy a nice car at the same time you would otherwise only manage to save up for just the cost of the house.

Stock Funds in contrast to money market funds are high risk, high reward. What money market funds give you in a month, stock funds can generate that much in a single day and lose that much in a single day as well. So, depending on how well our economy grows in the coming years, investing in equity mutual funds would be able to further shave a couple of extra years of your investment period as well. Stocks are making record gains recently after the big dip at the start of this year; as the market stabilizes with the injection of 20 billion government support fund. I would hope that it continues to grow at an average which we have seen in the last 10 years, where Pakistan Stock Exchange jumped from 10,000 to 45,000 points.

Though not everyone has the same investment goals. Some invest to make a big purchase like property or pay for a wedding, some just want a little extra money every month or just plan for their retirement; there are mutual funds for everyone. For instance, if you were investing to have an early retirement, you can choose to invest a big chunk of your monthly earnings into mutual funds. If you invest 50,000 monthly, after 10 years your mutual funds would be returning more than 3,000 daily or 90,000 in a month. Since there is no lock-in period like the usual investment in a bank, you can withdraw your earnings as and when you please. Whatever money you don’t withdraw continues to increase your monthly earnings and that is the beauty of compounding.

Excited about investments? Stay tuned as we jump in the world of mutual funds for the next couple of months. Feel free to ask questions and we will cover them soon.

Photo – Minerva John