Investing is not just saving a few bucks and putting it in your piggy bank. It is a long-term wealth-creation process. It is when you buy some asset like stocks, mutual funds, bonds, real estate, gold etc at some price in the hope to its price go up in future. So that you can make a profit by selling it at that higher price. Investing is the process of making your money work for you.
Investing must be done wisely
Investing is a process that needs utmost care otherwise it can be devastating for one’s financial life. Investing all your savings in a single asset or investing in bad assets can destroy all your lifelong savings. That is why when you think about investing your hard earn money in any asset you should make a careful observation about that and do your research about the legality, safety and capability of that asset class. There are so many bad investment opportunities than good ones so using your prudence is necessary for making any investment decision.
You must always be careful if any investment promises you a get-rich-quick scheme. Investing takes time and almost no investment vehicle can make you rich quickly. It is always better to remain sceptical of any scheme that looks too good to be true.
What one gets from investing
The purpose of investing is to grow your savings by earning rewards on them. This reward can be in any form like interest, dividend, appreciation in value, rent, premiums etc. Investment range from safer investments like bank FD to risky ones like penny stocks. Investors take risk of investing in risky assets when they anticipate higher returns in comparison to safe investment options. So the general theme is higher the risk higher will be the returns.
What is the objective of investing
The common objective of investing is to grow your money. That is making your money work for you. But different people have different anticipation of any investment as the risk profile and the financial goal of each individual are different. For example, some people might invest for their retirement, some for children’s education/marriage, and some others for their future goals and wishes.
The Process of Investing
The process of investing is a simple one first you need to educate yourself about various asset classes. Then short out the best asset classes that suit your needs and risk profile. Following this, you must do some planning such as if you want to invest an amount in one go or a smaller amount in regular intervals. With proper knowledge, planning and research you can make your investments in your suitable assets.
Why one should invest
Someone may ask what is the need to invest when we can earn and save it without investing. The simple answer to this is to beat the inflation. It eats up your savings if it is in cash form. Investing your savings in the right assets will protect your savings against inflation. That is why your investment must give you more returns than the rate of inflation in long run. If your return from investment is not beating the rate of inflation it is a depreciating asset. That is your capital is losing its value gradually.
The other reasons for investment may be saving for retirement or creating wealth. Every one of us has to retire from our work at some age. And if we want to maintain the same lifestyle after retirement we must have good retirement planning. That is our money must work for us so that it can give us income after retirement. Good retirement planning is essential for everyone and this makes investing more essential. Whether this planning and investing are done by you or by any other financial professional it must be started at the right age.
Creating wealth for better financial status and lifestyle is also a reason to invest. If done right investing can create a good amount of wealth to fulfil all your financial goals.
What are the common assets to invest
The most common assets to invest in are:
- Mutual Funds
- Real Estate
- Precious metal
All these assets come with varying degrees of risk and return involved with them. Also, each of them needs different amounts, to begin with, and has a different level of liquidity. Each one of them have also different tax liability associated with them that affects the returns.
So we can conclude that investing is the process of letting your money work for you so that you can fulfil your financial needs and maintain a good lifestyle. However, it also comes with a risk that must be calculated before committing your money to some asset class. One must gain enough knowledge and do proper research before investing. If done prudently investing can make your life more comfortable and happier.