Why investing is important
Why Should You Invest?
To begin with, let us see why one should invest in the stock market or in other related assets. Everyone has their own reasons to invest, but the two most common reasons are:
- Countering inflation
- Generating wealth
Everyone has a dream to buy a house or car and for this purpose, they save some money in their bank account on a monthly basis. If you do the same, you will be making a big mistake because the value of money declines year after year due to inflation.
What is Inflation?
In simple words, inflation means that when the prices of goods and services increase, you have to pay more for the same amount of goods and services than you did before.
Example:
- 4-5 years ago, 1 liter of milk cost around ₹20
- Today, the same milk costs ₹30-35
- Your money’s purchasing power decreases and as a result, you have to pay more for the same amount of milk than before.
Inflation in our country occurs at a rate of 4-6% per year, so if you’re keeping your money in your bank account only for savings, then every year, you’re losing 4-6% of its value.
Solution:
In order to avoid such losses, you have to invest your money in something which beats the inflation.
There are different types of investment options available in the market. Here are the seven main investment options:
- Savings Account:
A normal savings bank account’s main advantage is that it has no risk, but at the same time, it has a low interest rate of 2-4%, and some banks charge fees on their savings accounts.
- Fixed Deposit:
No risk, your money is safe, and returns are almost 6-7%. In India, most people prefer fixed deposits. Now several small banks have begun providing interest up to 9%.
- Gold:
Those who need more than 7% returns are advised to take some risk and invest in gold. Also a best option for hedge against inflation.
- Real Estate:
It requires a large capital to invest in real estate, and most people don’t have such huge funds. There is no fixed method to measure the returns generated in real estate, as it varies from one area to another.
- Bonds:
Bonds are issued by companies or government bodies that collect money from the public, invest it in business and promise to pay a fixed percentage of interest over a fixed period of time. That’s why they are called bonds. The typical returns from bonds vary between 8% and 11%.
- Mutual Funds:
This is a pool of money managed by experts by investing in stocks, bonds, and other securities with the objective of growing savings. A designated fund manager decides where to invest your money, and these experts create a diversified portfolio from these funds. It carries risks, but they are much lower than those in the stock market.
- Stock Market:
It has high risk & highest returns compared to all other investments. Best for long term & short term also, for those willing to learn and take calculated risks.
Why choose the stock market?
The stock market has delivered the best returns and beaten all other investments such as bonds and gold. It is definitely one of the most favored choices for a select group of investors.
From here, the actual content related to the stock market begins.
