Why Have Equities Given Grater Returns Than Fixed Deposits?

Equities have historically provided better returns than fixed deposits for several reasons, including the fact that they involve a higher level of risk. In the past, previous generations were more risk-averse and were less likely to invest in equities compared to fixed deposits, but the current generation is more focused on achieving higher returns rather than a regular income.

The following are some of the reasons why equities tend to perform better than fixed deposits:

Higher Risk: Equity investments are typically more volatile due to fluctuations in economic conditions. In contrast, fixed deposits offer regular returns through interest payments with less variability.

Inflation: Fixed deposits often have interest rates that are lower than the inflation rate, which means that holders of these instruments may not receive enough returns to offset the rising prices.

Dividends: Fixed-income securities only offer a fixed interest rate, whereas investing in equities can provide investors with both dividend income and potential price appreciation.

Long-term Horizon: Equities can provide higher returns than fixed deposits when held for a long term due to the benefits of compounding.

Conclusion:

While equities offer higher returns, they also come with higher risk and volatility. If an individual has a short-term investment horizon, they should consider fixed-income securities.

However, for those with a longer-term investment horizon, investing in equities may be a better choice due to the potential for greater returns.