Small is Beautiful

'Small is Beautiful' applies in investing too

There was once a tree at the edge of a forest that had deep roots, a thick trunk and wide branches. A lot of birds sat on its branches and passers-by sat under the cool shade that the tree provided to beat the scorching sun. At the foot of the tree there was a small plant that seemed slender and delicate and swayed at the slightest breeze.

The big tree was very proud of its achievements and often mocked the smaller plant. It even advised the small plant to follow in its footsteps and spread its roots wider. To this, the smaller plant smiled and remarked that it was safe just the way it was. The big tree had a hearty laugh at this thinking that the small plant had lost its mind.

But the big tree had spoken too soon. A few days later, a big hurricane struck the forest. The hurricane was so strong that it uprooted the thickest of trees, including the big tree at the edge of the forest. However, the small plant had managed to twist and turn with the strong gushing winds and survive the storm!

The story of the big tree carries a lesson for equity investors. There are many who feel that one needs to invest large sums in equities to create wealth over the long term. But this may not be true. Even smaller sums invested regularly over a stretch of time can help to compound and yield a large corpus.

Similar to the small plant which braved the hurricane, you too can create wealth despite bouts of volatility by choosing the SIP route. The only condition is that you need to be persistent and withstand the negative periods of the market. We therefore say that SIP is like a good EMI – an investment and not an instalment. Just as we are committed to pay our EMI, we should continue our SIPs for longer periods of 10, 20, 30 years and create wealth in the process. So if you believe that small is beautiful, then SIP is the way forward to meet your long term investment goals.

S. Devarajan Ph 9840177017