Coffee Can Investing is one of the classic investing practices that was inspired by the ancient concept of piggy banks and coffee cans. During ancient times, people used to save their money in a coffee can, only to break it decades later. Coming to investing, coffee can investing is an ‘invest-and-forget’ investing method that eliminates the component of repeatedly tracking investments.
A Coffee can portfolio consists of well-performing companies with ROCE(Return on Capital Employed) of over 15% and revenue growth of 10% annually. The investor consistently puts money in these companies every month and stays invested for at least 10 years.
Many Indians go by the practice of investing heavily in gold. But did you know Sensex beat gold by almost 50% in the long run? While Gold is excellent, not to mention a safer investment for hedging against inflation, equities are risky yet high-growth investments. Creating a coffee can portfolio can make a mint if invested strategically.
Mutual fund SIP versus the good old coffee can
While a horde of people create mutual fund SIPs, why should one go beyond the black stump and make a coffee can portfolio? Well, investing is not a one-size-fits-all practice. If not understood well, one will end up being the bad workman blaming the investing tools. Let’s understand the relevance of both investing modes to find your fit:
Mutual funds are managed by professional fund managers that rebalance the investments from time to time. Hence, people have to do little research when it comes to investing in mutual funds. Moreover, coffee can investing is done by creating a SIP of large-sized companies giving steady returns. In the case of India, there are only limited blue-chip companies that beat the index.
Should you still do Coffee Can Investing?
Coffee can investing requires consistency and financial knowledge. An average joe might need ample amount of research to succeed in generating good returns. Hence, if one is sure about the company’s financials and the soundness of business model, they can go ahead and try out coffee can investing.
Fun Fact: Benjamin Graham proposed a similar strategy called Dollar-Cost Averaging in his book, The Intelligent Investor. According to this strategy, one should invest an equal amount of money monthly in stocks, regardless of market conditions. When the market is bullish, you will buy lesser shares, and when the market is low, you’ll end up having more shares.