Why Should You Invest At All?
1.
To
keep the value of your money from depreciating every year:
Here we are talking about investing
in stock markets. But forget investing into equities, lest lets think about why
should we invest at all? Simple definition of investing is to put/park your
money in some asset/instrument (we will explain these terms in another article)
in order to earn a fixed or variable interest/gain on your money over given
duration.
What is the reason that we should
invest our money at all in any asset, security or anything else? Why not simply
keep the money in bank account, in form of stacks of cash, and simply keep
earning as we do and spend it as we want to?
So, if you do not invest, you keep
stacks of cash or keep it in savings bank account and spend it as you wish. There
is no 4th thing to do with it which does not come under definition
of investing.
The main pitching to you if you make
the above is that there is a thing like INFLATION. This inflation is the only
only and only reason why we are pitching hard for you to invest. However there
is one another as well. But we’ll just come to it in a short while.
And to make a long story short, inflation
is making your money less and less valuable every year (almost by 6-10%). The
meaning of inflation is that things are getting costlier with every passing
day/year, and so does the capacity of purchasing them of the currency/money you
have. So suppose if you have put Rs.1 lakh stacks of cash in your bank locker
of cupboard on 1 January then at 31 December it has become probably Rs.96000 or
may be even less for sure. This is not a theory, it is an economic fact. Even
if you have put them in bank savings account then also bank savings account are
not incurring any interest or a very very less interest which does not farly
compensate the depreciation of your money due to inflation.
SO, THE POINT IS IF YOU DON’T WANT
YOUR MONEY’S CAPACITY TO DEPRECIATE EVERY YEAR 6% AND EVEN MORE – THEN INVEST !
2.
For
achievement of future goals :
So now you know that your money is
depreciation, or in other words your money’s capacity decreases every year to
purchase things or spend on services because of this inevitable economic thing
called INFLATION.
So, you understand that if you want
to keep the value of your money intact YOU HAVE TO EARN MORE INTEREST THAN THE
RATE OF INFLATION. Don’t get confused. For example, the rate of inflation i.e
the rate at which your money is depreciating every year/prices of things rising
every year, is 8%; then you have to earn 8% return on your money to keep your 1
lakh as much as 1 lakh at the end of year.
But suppose if you are an aspiring
person (which most of people are), you have some future planning and goals. For
example purchasing house, getting married, having kids, purchasing car, education
and marriage of children, traveling abroad, may be starting a business and so
on.
So, for that you need certain amount
at the certain future date. For e.g. if you have a 5 year kid and you want her
to take a good graduate education degree which is coasting right now Rs10 lakh,
so you have to estimate that due to INFLATIN, how much would it cost ater 13-15
year ahead and INVEST MONEY ACCORDINGLY, so that you can have that much to fulfill
your that plan/goal. Like in our Explanation.1, you have to earn same % as the
rate of inflation, but to achieve your goal of having a certain sum of money at
the end of certain duration, you have to earn more % on your amount. (AND WHERE
ARE YOU GONNA GET IT? OF COURSE BY INVESTING! ) We can write a lot on this
financial planning aspect. But will limit myself here and do a separate article
on financial planning altogether.
So, now you understand that apart
from 1. Saving your money from depreciating its value; Your another reason to
invest is for fulfillment of your future goals or financial goals as we know in
our terms.
Now, you know FOR SURE, that you HAVE
TO INVEST your money somewhere. And WHY SO? And that you have to earn at least
a return equal to the rate of inflation if you just want to keep the value of
your money intact, and if you want to increase your money, you have to earn
more return that rate of inflation. But now as to where to invest it, we will
do a separate article.
There are no risky, less risky,
moderate risky and high risky of so called division of investments.
But, we hope that you got the picture
that you have to invest your money if you have a family and want a decent
living condition in your future as well.
…and wait...Who keeps their money in cash stacks??
Guhhh
For more original articles on educational visit our page 'KNOWLEDGE TOPICS'
For more original articles on educational visit our page 'KNOWLEDGE TOPICS'