Real estate or stock market: Make investment decision based on conviction

Stick to asset class you are confident about and are certain that you stay with them for the long term

investment bankers
Deepesh Raghaw
5 min read Last Updated : Feb 17 2023 | 7:52 PM IST
Amit earned a reasonable return on his mutual fund investment made 15 years back. Roshan invested Rs 50 lakh in a residential property 15 years ago and the value grew to Rs 2 crore. He was proud of this investment decision.

Roshan joins Twitter where he is told that 4X over 15 years is a return of just 9.7per cent per annum. “If he had invested this in the stock markets, his investment would have grown to around Rs 4 crore,” he was told. Roshan wonders if he made the wrong choice.

No, he did not make a wrong choice.

Some social media advisors may have the knowledge of a 70-year-old, but show the wisdom and judgement of a seven-year-old. Their focus is just on returns (XIRR, CAGR). However, you cannot eat XIRR. Eventually, all that matters is the absolute return. Roshan did well on that front.

He could have done better by investing that Rs 50 lakh in the stock markets 15 years ago, but that’s hindsight bias. It ignores many important aspects.


Investing is not just about start and endpoints. The journey and the amount invested matter.

Since Amit earned better returns, he is the winner here. But is he? Or are we missing something here?

A = P * (1+R) ^ n

‘A’ is the current value of the investment. ‘P’ is the amount originally invested. ‘R’ is the rate of return earned. And ‘n’ is the time lapsed. Usually, our focus is on ‘R’ and ‘n’.

We speak about earning good returns over the long term. That’s ‘R’ and ‘n’ for you. But what about ‘P’, the amount invested? Does ‘P’ not matter? It does.

Rs 1 lakh over 15 years at 20 per cent per annum grows to Rs 15.4 lakh. That’s a tremendous 15X growth, an absolute gain of Rs 14.4 lakh.

Rs 50 lakh over 15 years at 9.7per cent per annum grows to Rs 2 crore, an absolute gain of Rs 1.5 crore. In absolute gains, Roshan beats Amit hands down.

What do you need to increase “P”? The most important part is conviction. Unless you have conviction, you won’t be able to invest meaningful amounts. And we have seen above that the size of the bet matters too.

Roshan had conviction in real estate investments. Conviction can be misplaced, but you need it to make bets.

Conviction can come from experience, knowledge or belief. Hence, Roshan invested Rs 50 lakh at once and was not bothered by ups and downs in the market value of his investment. 


You may argue we are comparing apples and oranges: Rs 1 lakh from Amit and Rs 50 lakh from Roshan. You might say, “If Amit had Rs 50 lakh, he would have done much better.”

Perhaps yes. But would he have had the courage to invest Rs 50 lakh at one go in stock markets? Or would he be able to stick with his investment during market downturns? Amit may well have the skill, patience, and discipline to succeed in stock markets. However, that’s meaningless because we are analysing Roshan’s decision here.

Investment success requires you to play to your strengths and avoid weaknesses. Roshan did exactly that. He was comfortable with real estate and uncomfortable with stocks. What may look like a suboptimal decision to others turned out well for him. And that’s all that matters.

I am not vouching for residential or commercial real estate as an investment. Real estate has its own set of problems. And serious ones at that. I do not like real estate as an investment. But that’s my preference based on my conviction. You may have a different belief system and that will affect your investment choices.

The conviction bit is not just limited to real estate investment decisions. For instance, I am more comfortable keeping my equity portfolio in a couple of index funds compared to a portfolio made up of four-five stocks. While a concentrated portfolio offers you upside, it is also a double-edged sword. A diversified portfolio of index funds helps me sleep peacefully at night. I know (or I have the confidence) that I will do well if I hold the same index funds for 10-15 years. And this helps me add to my positions every month. I do not have to worry about tracking performance of the individual stocks in my portfolio.

Without conviction, you will never make meaningful bets. For instance, if you are too scared of equity markets, you would run an SIP of only, say, Rs 5,000 per month despite your monthly savings being Rs 2 lakh. While this technically ticks the checkbox of equity investments, this would never make a meaningful difference to your finances. 

(The writer is a Sebi-registered investment advisor (RIA) and the founder of PersonalFinancePlan.)

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Topics :Personal Finance Financial planningmutual funds investments

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