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So you want to buy a Depreciating Asset

Maxlife had come up with an excellent ad on overcoming temptation to buy depreciating asset through “Sachchi Advice”. The discussion goes like this:

Older: Why do you want to buy a mobile for 50,000. Add some 10,000 and you can buy a bike.

Younger: When I am buying a mobile, you are asking me to buy a bike. When I buy a bike, you ask me to buy a home.

Older: Do one thing, buy a mobile for Rs. 20,000 and balance invest in a good policy.

Younger: Advice is good, but when you were at my age why you didn’t invest.

Older: When I were at your age, I don’t have a big brother who can give good advice.

Understanding the value of asset and its nature is beautifully captured by the above ad. On one hand, we see younger one want to buy a mobile ( a depreciating asset) by spending huge amount whereas his brother is suggesting him to buy the mobile at lower cost and invest the remaining in a good policy (appreciating asset).

The struggle always happen amongst us and many a times we get tempted to buy impulsive things by splurging a lot.

Advertisers make an effort to manipulate us in buying their depreciating assets by satisfying our ego and boosting an aspiration level. We were bombarded with advertisements which project the dress we wear, the car we ride, the mobile we use as status symbols. The moment we buy them the value of these goods deteriorate rapidly. We call this as depreciating asset. Mobile phone which was bought at Rs. 50,000 could hardly have a re-sale value of Rs. 15,000. 

On the other hand, appreciating assets look very boring and does not create a spark amongst us when we want to buy them. As the old saying goes, “All the good things come in boring ways”, we may not appreciate the usefulness of an appreciating asset but over a period it should satisfy our growing economic needs.

A piece of land bought now for Rs. 4.0 lakh may double in span of 4 years. Similarly, a mutual fund or investment in stock markets on long term may appreciate over a period and give us handsome returns. All these type of investments are called as appreciating assets (subject to market risk). They may not advertise themselves as status symbols but try to urge you to start saving, start investing which benefits over long term. I had seen people invested in good stocks and hold it for a period of more than 10 years saw their returns multi-fold. 

Where the patience exists, there the success persists

We are always surrounded by people who want to become rich and famous overnight. But those who became rich or famous struggle over a period, showed patience in whatever they believed and once the success comes the media latches them as overnight success which is untrue and tantamount to simplifying things.

There is a beautiful article on Why it takes 10 years to become a overnight success that chronicles what people go through before they become successful. I recommend you guys to read that. At the end of the day, you have to decide whether you want o buy an appreciating asset or depreciating one.