Why is investing important?

50 YEARS BACK.

Recall the scenario when your parents were working…In those times, it was common for people to stay in the same job all their working lives. Most of them had government jobs where job security was ensured. Opportunities were limited. So they were content with what they had.

With whatever financial assistance and savings they got, they managed to raise children, educate them and buy a home. Medical field wasn’t so technology driven and expensive.

When they retired, they got the benefit of pension that has dearness allowance built in so that, their pension pay grows with inflation. And, they expect their children to look after them in their old age.

NOW..

But now, times have changed. Most people work in the private sector where there is no guaranteed job security. But, every sector has an ocean of lucrative job opportunities to offer.  This generation lives in a very competitive world than ever before.

It’s a situation where they need to work really hard to make a mark.At the same time, they need to look after their aged parents, take care of their children’s needs, and fulfill their own dreams.

Medical expenses and retirement are real big issues.With advanced technology being used every where, the cost of hospitalisation and treatments are so high that , it’s almost beyond the reach of common man.

You need not expect your children to look after you just because, they are going to live in an even more competitive , stressful and faster world.

So it becomes quite essential for today’s generation to invest for their future needs. Mere savings from job may not be enough. You have to create wealth by investing. Simply put- while your work hard for more money, you money too should work for you!

Investing is not something which only wealthy people can do. Investing is possible for all classes of people. For this, irrespective of your income levels , you need a proper financial plan. You need not have big funds to start investing. even if you invest small amounts regularly, you will be able to achieve all your goals. The starting point is – you should decide where you will invest and how long.  To choose wisely, you need to know the investment options thoroughly and their relative risk exposures.

That’s the importance of investing. Investing is the best way to secure your future.

PLAN AND INVEST

The key to wealth is to plan and invest. Your job is only half done when you save money. That money has to be invested in wealth creating assets in prudent ways.  As a first step, you have to clearly define your short term and long term financial targets. Once you have a clear idea about your financial goals, the next step would be to draw a clear road map to reach your target. However, readers should not think that financial planning is all about creating wealth. Financial planning, in fact, is a very broad term and Investing is only a part of your financial plan. A proper financial planning can be done only if you can clearly chart out your strengths , your goals and your capacity to take risk.

Later on, we will discuss what financial planning is all about and the advantages of having a definite plan.Right now ,our next chapters would explain more helpful topics like when should you start investing and The right mind set for investing.

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What is investing?

INVESTING

Investing is not just about depositing your savings in the bank every few months. It’s about growing your money. It’s about making your money work for you.

INVESTING IS A LONG TERM ACTIVITY

When you invest, you  buy an asset like shares, mutual funds, gold or real estate when it’s available at a bargain and wait till its price go up. You may have to wait for a long time, say 5 or 10 years to get a real appreciation for your invested funds. So,  investing is a long term activity, you have to wait for your rewards.

IT’S ALSO ABOUT GROWING YOUR MONEY PRUDENTLY.

Money is a weapon that’s to be used very very carefully or else, it can backfire within no time resulting in a total ruin of your life. By being ‘prudent’ we  mean, determining an action or a line of investing that’s practically wise, judicious and careful.

When you look around for opportunities to invest, it’s natural to stumble upon ideas like multi level marketing of certain financial schemes or money chains etc that may seem to be too good an opportunity to make a quick buck. It’s important not get tempted by such investment offers. Any investing decision you take must be practical, legal, safe and capable of creating wealth for you in the long run.

REWARD FROM INVESTMENTS

Investments range from risky types like stocks  to very safe ones like fixed deposits. Depending on the type of investment you’ve made you get return in the form of rent, interest, dividends, premiums, pension benefits or appreciation in value. The more risk you take, the more you earn as rewards.

OBJECTIVES OF INVESTING

Objectives or purpose of investing would be different for different people.  By choosing to budget your expenses, accumulate money, invest that accumulated fund and limiting the amount of debt – you can achieve most of your life’s goals. Normally, a person would invest with one or many of the following objectives in mind:

  • A Regular Income
  • Creation of wealth
  • Preserving his capital
  • Planning for retirement life
  • Education /marriage of his children.
  • To start a business

THE PROCESS OF INVESTING

The process of investing is quite simple-

Depending upon the money you got, you will have to short list the type of asset suitable for investment.

Next, you’ll have to assess yourself and find out how much knowledge you have in that particular asset category. This assessment will tell you where you stand right now, and the amount of preparatory work you need to do before investing you money in it.

Once you gain enough knowledge, try to draw a plan to invest systematically – get access to the right information, plan properly and make the right choice.

REASONS TO INVEST

Why does investing acquire so much of importance? That’s because of three core benefits of investing-

First, the probability that you’ll beat inflation.

Second, the probability of achieving your financial goals quickly.

Third, the probability of building something for your next generation.

An investor’s  main focus should be to beat inflation.  Inflation and it’s after effects were discussed in our previous articles.  You’ve to invest in such a way that the rate of return beats the inflation rate. If you don’t do that, it eats away your returns. Unless your rate of return beats the inflation rate, you’re not growing your investments.We said ‘probability’ because, investments carry the risk of not hitting the desired targets. When you set higher targets ( higher returns) the risk of not achieving it is also high.

Apart from achieving financial goals and securing your children’s future, another important reason would be to plan for your retirement. When do you plan to retire? At 60 or at 50? You can opt to retire when you have a sufficient amount of wealth so that, you can maintain the standard of living that you are maintaining today. The earlier, the better!

In the coming lessons, we take to you through different aspects of investing. Each lesson has a concept to share. At the end, you’ll know what investing is all about, why it’s essential to invest early, different avenues to invest etc..In our next article , let’s see why investing is the most important activity one should have.

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