The Need to Invest
By Biswayan Bhandari
Before we examine the need to invest, let us see what happens if one does not invest. A person earns a fixed monthly salary out of which a big portion is spent on cost of living, which includes food, housing, transportation, health and other expenses. Assuming one gets a salary hike every year, its effect will be countered to some extent by the increase in cost of living due to inflation. This leaves a not so impressive surplus amount at retirement, after decades of hard work. Even this surplus may have accumulated at the cost of not improving one’s lifestyle over time and suppressing lifelong aspirations like better home, car and vacations. Now we’ll consider how the situation could have been different with investment.
Introduction
Investing in share market gives you an opportunity to earn potentially higher returns on your investment. Thus, venturing here gives you a chance to compound your money in the long run and accumulate wealth for various life goals.
It is a way to set aside money while you are busy with life and have that money work for you so that you can fully reap the rewards of your labor in the future. Investing is a means to a happier ending. Legendary investor Warren Buffett defines investing as “the process of laying out money now in the expectation of receiving more money in the future.” As a child, for the longest time, I actually thought the money plant in my garden will grow cash for me in future. While adulting has rightfully busted that claim, who doesn’t want to see their money grow? The stock markets can be the right embodiment of a money plant if you invest right, make informed decisions, and be wary of the risks associated.
If you are yet to test the waters of the stock market milieu, this article is definitely for you. Here i put top 5 reasons to invest in the stock market.
1. It’s simple
You, as an investor, can complete your KYC and identity authentication within minutes. This can be from the comfort of your homes as opposed to age-old methods of standing in lines with physical copies of share certificates. new-age platforms also provide a wealth of resources that you can use to learn the nuances of investing. With convenience and knowledge at your fingertips, a seemingly tough investment option is now within your grasp.
2. Power of compounding
When it comes to investing and understanding how wealth multiplies, the concept of compounding has a huge role to play. If you let your investments stay for a long time and let the interests compound, you will reap good results and will get one of the best benefits of investing in stocks. This is one of the main reasons why you should consider investing now if you have not done it yet.
Example: if you had invested 10,000 rupees in WIPRO in 1980, the magic of compound return would have given you 700 crores in 2020..🤩
I believe stock market will help reap benefits if invested for a long-term. Do not disturb your stock investments during its tenure. Let it stay invested for a long time to get the true value of the stock’s growth story.
3. Win the race against inflation
Inflation is a definite hurdle when it comes to wealth creation and hence, choosing avenues that beat inflation is the only way to grow rich in the long run. Say an investment gets you 3–4% returns every year but the inflation rate itself is 5.5% or so.
Your Rs 100 investment can get you Rs 104 after returns but due to 5.5% inflation, the value of money reduces and what you can actually afford is just Rs 98.5 approximately. The inflation rate can even be higher. The returns you earn from your investment will either cancel out or be minimal. Your returns might be Rs 104 in year 2 but because things have gotten expensive due to inflation, what you can actually afford is probably just Rs 98 worth goods. If your returns are not higher than the inflation rate, effectively your returns from investment become minimal, zero or maybe negative and stock investments can fetch you high returns over a long period.
4. Fixed returns are boring
If you are wondering why to invest in stock markets at all, the answer is that fixed returns can get boring as there are other places where you can get a better value for your money. Traditional products like fixed deposits or recurring deposits are safe instruments but also give fixed returns for the investment tenure.
While stocks are aligned with the markets and can give you double-digit returns in its good days as well, traditional products will give you a set fixed number on all days. So dividing a portion of your assets into accelerated wealth-creating instruments like stocks can help you reach your goals faster with the same investment amount.
5. The powerful long term investment
Bajaj Finance, a non-banking finance company, between December 2009 and December 2019 gave 13,000% returns in its stock. This does not mean all stock investments will turn a lakh-worth of your investments into crores. But it will certainly serve as a great tool to multiply your money to the best extent possible if you keep it for a long period of time. If you invest in the stock market in India and hold it for longer time, such a function of the stock markets will help you in long term goals like retirement.
Note:
Stock market investment can be fun and interesting but all good things come at a price. The price you have to pay here is just a bit of research by yourself, understand how much risk you can take, what kind of an investor you are, which kind of stocks are available in the market and which suits you more. Invest now and enjoy the benefits of it later!
