Debt or Equity which is the better investment…?
Posted By: Admin
As in the story of the proverbial Rabbit & Tortoise race, the Rabbit (Equity) is a fast asset class, it moves very fast but sometimes like the rabbit in the story, it loses direction and tends to run in the opposite direction to the destination it seeks to reach. Therefore, while Equity has the speed to its advantage, its absence of direction in short periods tend to blunt the speed advantage. So too is the case for equity investments. While this asset class can deliver the best long-term returns yet in the short term these returns sometimes reverse due to a variety of factors and thereby, the returns tend to get moderated. Equity, while the best return giver in the long run, can generate the capital loss in the short term as well.
On the contrary, the Tortoise (Debt) is a slow asset class. It moves purposefully but slowly. It never wavers from the sight of its goal. The focus ensures that the tortoise (Debt) is free from distractions and is every minute closing the gap to its goal with the least possible risk in the journey.
The Rabbit (Equity) and Tortoise (Debt) represent the Yin & Yang of all decisions we face about investing (in fact most things in life too), do we want a FAST and LARGE outcome from our actions that are uncertain or do we want SLOW and LONG WINDING outcome that is certain. This choice constantly bothers us.
Most people settle for either a Rabbit (Equity) or Tortoise (Debt) as their (investment) vehicle.
We do believe it is NOT EITHER, OR; but AND. The way to win the race most effectively is to use both the rabbit (Equity) for speed, so that you cover good ground, but when the Rabbit starts becoming distracted, switch to the Tortoise (Debt) to stay on course albeit at a slower progress. The judicious alternating of both the Rabbit and Tortoise should see you reach home QUICKLY, SAFELY AND PREDICTABLY.
Category Finsherpa | Tags Financial Freedom
