Why Should You Invest?

In a world where money talks the loudest, how does one realise one’s dreams? Obviously, money is the answer. But how to make money is the real challenge, and an even greater test is matching one’s income with expenses. In today’s times, everyone is concerned about making ends meet. Uncertainties like increasing prices, changing lifestyles, pink slips, health problems are some pressing concerns. Then there is also the part about saving for a rainy day.

Merely saving is not good enough. What is important is to save in such a way that the funds multiply on their own. That, dear reader, is what investment is all about. You need to plan well to make your money work for you so that you can ‘relax’ for the rest of your life.

What Is Investment?

If you are a novice at investing, terms such as stocks, bonds, bonus, dividend yield and P/E ratio may sound like Greek and Latin to you! But relax. Investment is as much a science as a fine art, and takes time to get a grip on.

At the first level, you must understand that investment is the method to gain profitable returns as interest, i.e. income appreciation in value. In the simplest of terms, it means to let your money work for you.

Consider the following:

You cannot create a duplicate of yourself to increase your working time, can you? So, what then? You have to send an extension of yourself – i.e. your money - to work for you. That way, while you are putting in hours for your employer or sleeping, reading the newspaper or socialising with friends, you will also be earning money elsewhere. Quite simply, making your money work for you maximises your earning potential whether or not you receive a raise, decide to work overtime or look for a higher-paying job.

Investment options are aplenty – stocks, bonds, mutual funds, real estate, gold, etc. No matter which option(s) you choose, the goal is always to put your money to work so that it earns you an additional income. Even though this is a simple idea, it is the most important concept that you need to understand.

Invest so that your money grows and shields you against rising inflation. This is to say that the rate of return on investments should be greater than the rate of inflation, leaving you with a decent surplus over a period of time. Whether your money is invested in stocks, bonds, mutual funds or certificates of deposit (CDs), the end result is to create wealth for long-term goals like retirement, marriage, assets, vacations, a better standard of living or to pass on the money to the next generation. It is also exciting to review your investment returns and see how they are accumulating at a faster rate than your salary.
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When To Invest?

The earlier the better. Many people fail to plan their investments and find themselves in a soup when the need for large finances arises. Remember, regardless of what the naysayers say, there is no such thing as too early or too late to start planning your investments. It also matters less if we invest a few thousand rupees or a lot more. What is important is to make investment a habit, to do it regularly and to learn the basics of investment so as to make well-founded decisions based on your goals.

Of course, by investing in the market as early as you can, you can give your investments more time to grow. The power of compounding swells your income to truly gratifying proportions by accumulating your earnings and dividends over long ‘Rip Van Winkle’ years – although, to reverse that metaphor, invested money never really sleeps.

Three Golden Rules For Investment:

1. Invest early
2. Invest regularly 
3. Invest long term and not short term

Where To Invest?

With changing times, the price of each and every commodity is changing. So, what we sow today should reap enough to meet our future needs.

If you had invested in an asset two years ago and it shows reasonable appreciation now, you would be really excited about having made the right investment. Sometimes, one also discovers that our savings are not quite enough to meet our needs and we conclude that the investment was a bad one. You may then wring your hands saying, “Wish I had really known how to invest!” The question, of course, acquires appropriate proportions depending on the quantum of the loss. Taking an informed investment decision is better than relying on someone (even an expert) blindly or leaving things to chance. The good news is that any person who wishes to learn the ‘basics of investment’ can take calculated investment decisions.

There are many ways in which to invest one’s money. Of course, there is also the possibility of making a wrong choice, which may lead to the investments going down the drain and substantial reduction of your capital. But in today’s world, where knowledge is freely and easily available at a mere click, there is hardly any excuse to be ignorant about the various investment options and their ability to meet our needs.

Let’s take a look at some of the investment options available:

Fixed Deposits

Fixed Deposits are meant for those investors who wish to deposit a lump sum amount for a fixed period – ranging from a minimum period of 15 days to five years and above – thereby earning a higher rate of interest as returns. The investor can choose from a lump sum (principal + interest) amount when the fixed deposit matures, or periodic (typically monthly or quarterly) payout of the interest amount while the principal comes back to them at the end of the maturity period.

Shares

A share or a stock is a document issued by a company which declares its holder as one of the owners of the company. Shares are issued by the company (primary market) or may be purchased from the stock market (secondary market).

Bonds

Bonds are a debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate. Bonds are used by companies and government bodies to finance a variety of projects and activities.

Mutual Funds

Mutual funds are operated by asset management companies, which collects money from the public and invests in a group of assets (shares, debentures, etc.) on the investors’ behalf.

Of course, even acquiring knowledge does not preclude the possibility of risk, which can reduce the returns we are expecting from our investments. However, sufficient knowledge can act as a safeguard and help us plan better and make more decisions based on sound principles.

Dalal Street Investment Journal advises investors to be aware when it comes to investment. Learn to identify the signals that the market emits. Leveraging Dalal Street Investment Journal’s 27 years of stock market expertise, the DSIJ Academy can guide you in this effort.