# Can discount sales lead to wealth creation?

Posted On Monday, Oct 20, 2014

Indeed the festival season inevitably brings about a demand on the purse. Shopping is seemingly necessary to celebrate the festive season and to keep the family happy. All the retail and e-retail stores are offering discounts and offers galore trying to entice you to part with your money at their store/website.

Sometimes the sale gimmick doesn’t work as intended, as we saw in the case of the billion dollar discount sale held online earlier this month that disappointed many shoppers with its technical glitch.

That was one sale that generated tremendous savings for shoppers…. I’m sure you are wondering how a sale could have generated savings?? Isn’t a sale an excuse to splurge and buy things we don’t really need?

This idea struck me when I received a message from my cousin saying that in total she had saved Rs 1.4 lacs on that mega sale day! I wondered what did she intended to buy that she saved so much and was in splits when she told me that all the items which she wanted to buy were either out of stock or the website hung when she tried to buy! My immediate reaction to the message was “wow” that is great saving and and that she should go ahead and invest the proceeds in Quantum funds immediately!

A wise oracle (of Omaha) had very eloquently put this spending habit in the following words “If you buy things you don't need, you will soon sell things you need.”

The art of generating wealth is to avoid such unplanned and impulsive purchases. Savings can be generated from a series of simple steps and long term wealth can be secured by investing the savings and allowing them to compound. In my cousin’s case the table below gives a snapshot of the terminal value of this saving over different time periods and over different rates of return.

Principle Rs. 140,000.0

 Year / Rate of Return 5% 10% 15% 5 1,78,679 2,25,471 2,81,590 10 2,28,045 3,63,124 5,66,378 15 2,91,050 5,84,815 11,39,189 20 3,71,462 9,41,850 22,91,315

The above table is for illustrative purpose only

Needless to say my cousin was zapped, when she saw how much her supposed shopping bill could help her save!!

Some simple rules to remember to generate long term wealth:
✔ Compounding over long periods of time is more beneficial. While a 15% rate of return is only 3x that of 5%, the terminal value over a period of 20 years with a return of 15% can be higher by 6x. To put it simply, investment can multiply manyfold if the investment is made and held in the right asset class for a long period of time.

✔ A low return portfolio runs the risk of not making enough to beat the inflation. Eg if the average inflation rate is 7% then the portfolio which generates 5% return is not enough to sustain the same kind of living standard as currently enjoyed. Lets look at this by way of an example, your favourite café charges Rs.100 for a cappuchino. Given inflation that same coffee will cost Rs. 107 in the next year (7% inflation). If you have invested in an instrument that gives you 5%, you make Rs. 105.
This means that you need to put in Rs. 2 from your pocket to afford the cappuchino in the subsequent year.

✔ A higher return expectation may require a higher appetite to take risks.

The other rules that may be useful to remember to stop the wealth being drained during a festive season are:

✔ Make a list of things that you need to buy for the festive season. Revise the list and knock out things which has little use. Plan to execute the shopping list efficiently either by deciding the shop where to buy it or the website where to buy it from.

✔ The items that you knocked off the list were clearly items that you did not need but nevertheless got tempted to put it in the list either because you heard of the product or because you saw a discount sale advertisement. Since you avoided spending this amount you can use this amount for investment.

Following these simple principles will ensure that you not only have a great time celebrating the festival of lights but also save enough...

...If only the e-tailers servers have glitches more often-many investors could be substantially more wealthy!

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