Charlie Munger, partner of Warren Buffett, was asked "What are the keys to becoming agood investor?" He replied, "The keys are discipline, hard work and practice." With the entire marketing industry working at encouraging people to consume and spend, it needs discipline to save, to invest and takes much arduous work and practice in order to master investing.

This becomes even tougher in times of rapid change and massive disruptions like the last five years. But, guess what? Nearly every generation has thought it was seeing the most radical change in human history.

The principles that work towards success are the same. So, what is the outlook for various investment options today for Indian investors?

Cash and fixed deposits:

Investors are deciding on "totally avoiding risky investments". However, the returns on cash, from zero per cent for cash under the mattress, to 8- 10 per cent on fixed deposits, represent negative posttax and post- inflation returns.

Purchasing power is eroded over time with such negative returns. We expect bank fixed- deposit rates to rise in the next few months as monetary rates are elevated. Investors should use bank FDs for capital preservation and steady income generation, but keep in mind that post- tax and post- inflation returns are low to negative.

Precious gold:

Gold has provided strong returns in the last few years, and is a favourite of Indians. Warren Buffett pans gold investing thus: You could have bought the Dow Jones for 66 in 1900. Gold was then $ 20. In 2000, the Dow was 11,400, and you would have gotten dividends for a hundred years.

Gold was $ 600 in 2000. So, a decent productive asset will kill an unproductive asset."Gold has been down 28 per cent in dollar terms, on a year- on- year basis. Indian prices have been cushioned by the depreciation in the Indian Rupee, of 12 per cent, and the 10 per cent import duty levied. The global environment, where US growth continues to improve, the US dollar is strengthening and a QE "taper" is inevitable, is expected to keep gold prices restrained. Even in India, despite inherent demand, there is a likely downside risk to gold next year.

Tax- free PSU bonds:

These give cyclically high returns for long tenures from 10 to 20 years. Yields on these will rise over the next quarter and then plateau.

Fixed- income mutual funds:

With continuing concerns regarding inflation and the overhang of fiscal and current- account deficits, the long- term yields may not have peaked. These are expected to further firm up and be volatile. This makes long- duration funds unattractive due to the risk of negative returns. Short- term funds, liquid funds and FMPs, in contrast, offer attractive rates to investors accompanied with lower volatility.

Indian equity and equity mutual funds:

With the BSE Sensex at 14x FY15 earnings, the Indian stock market is still slightly lower than its long- term average. While valuations reflect the current state of our economy, this is an opportunity to pick good quality companies at cheap valuations. Actually, even this consolidated figure is not really reflective of the pessimism built in. If one leaves out the pharmaceutical, FMCG and IT sectors, valuations of rest of the BSE Sensex are much lower.

Not only that, mid- cap and small- cap companies valuations have corrected a lot and these stocks trade at a 30- 50 per cent discount to large- cap valuations.

The election results would be the most important driver for market levels in 2014. While we do not expect any imminent turnaround in private- sector capex momentum and are cognizant of elevated inflation, we believe that a combination of an improving external account, the good monsoon and an easing liquidity environment has started to provide a favorable risk- reward equation.

Having said this, markets are expected to be volatile for the next 812 months. Hence, it goes without saying that one needs to be patient while investing in equities and take the long- term view. Retail investors have unfortunately invested at peaks and exited markets at declines. Equity mutual funds' "systematic investment plans" would be the best route for retail investors to participate in the long- term India growth story, which is inevitable though marked by short- term volatility.

US/ EU equities:

The US economy is continuing its broadbased recovery, growing at a fasterthanexpected 2.8 per cent annual rate in the third quarter of 2013. (Expectations were 2.5 per cent.) The Department of Commerce has acknowledged that the pace of the US recovery has picked up. Improvements in the US labour market will support a positive contribution from personal consumption, and exports will boost US manufacturing and GDP, overall.

The recovery in the euro- zone GDP, after an extended period of recession, is expected to continue, though at a modest pace. The forecast for euro- zone growth is 0.7 per cent in 2014 after a contraction of 0.4 per cent in 2013. Economic expansion should be supported by an easing fiscal drag, stronger exports and a modest rebound in domestic demand.

Germany is likely to be the growth leader for the region. In addition, the European Central Bank (ECB) should maintain easy liquidity conditions which should support growth.

Recent trends in Japan where Abenomics has led to improvements in business sentiment and positive developments within the manufacturing sector appear to be gaining traction and have put the economic recovery on a firmer footing.

The reform measures announced in China last week make a case for investing in Chinese equities, which have underperformed for the last few years.

There are opportunities for such offshore investing in developedmarket and emerging- market equities through feeder funds, which are attractive from a portfolio- diversification perspective

Real Estate:

Real estate is a favoured investment asset class of Indians, but the best- case scenario could be below inflation's rise and a worst- case sharp price correction followed by a time correction period of multiple years. Invest in real estate for actual consumption, not as an investment; there are better and more liquid opportunities available for Indian investors. In summary, Indian investors should think sensibly and invest in what they understand. It is critical to appreciate the risks that come with any promised rewards. And who better than Charlie Munger to advise us on this: Organised common ( or uncommon) sense – very basic knowledge – is an enormously powerful tool. There are huge dangers with computers. People calculate too much and think too little.