Why invest?
Basics of stock market
• Why invest?
• who regulates
• financial interdependence
• IPOs
• Stock Market returns
• Trading system
• Day end settlements
• Corporate actions
• News and Events
• Getting started
• Rights, ofs,fpo and more
• Notes
Why Investing is Important & Where to Invest?
Investing is a great way to grow your money and save for the future. It puts your money to work for you, allowing it to appreciate in value over time. You can invest in stocks, bonds, mutual funds, or ETFs (exchange-traded funds) and use the returns from those investments for retirement savings or other goals you may have. Different types of investments have different levels of risk and reward—so it’s important to conduct research and speak with a financial professional before taking a plunge into investing. Once you determine where and how much to invest, make sure you’re diversifying your portfolio across multiple investments so that no one type of investment represents all your holdings.
This helps reduce financial risks down the road by ensuring that if one investment falls through, others will still be able to support you financially. With careful planning and due diligence, investing could ultimately help you build wealth over time!
Why Should You Invest?
Also, Investing is essential to achieve your goals. It is the only way to make your future better. By making investments, you are also saving and accumulating a corpus for a rainy day. Apart from that, making regular investments forces you to set aside a sum regularly, thereby helping you instill a sense of financial discipline in the long run.
Impact of Inflation & Importance of Investing
Importantly, Simply put, inflation is a rise in the cost of goods and services. However, Your purchasing power and money’s value are both diminished. Undoubtedly, With the same amount of money, you can buy fewer things when inflation rates rise. The inflation rate is outside of your control. If you want to stay ahead of inflation, you must have enough money now to buy the full range of the goods you plan to buy in the future.
Surely, Money doesn’t, however, grow on its own. Whereas, Your money must generate returns if it is to grow. You must invest if you want to get returns. Investments are therefore required to combat inflation. At last, An 8 % inflation rate means that you will need 8 % more money than you do now to buy the same thing next year. Here is how Rs. 1 lakh would be worth after eight years of inflation at 8%.
Where can I invest?
Having figured out the reasons to invest, the next obvious question would be – Where would one invest, and what are the returns one could expect by investing?
For example, Once one has determined why one should invest, the next logical question is where to invest and what kind of returns one can anticipate. A category of investments with specific risk and return characteristics is referred to as an asset class. Popular asset classes include the ones listed below.
- Fixed income instruments
- Equity
- Real estate
- Commodities (precious metals)
Fixed Income Instruments
Investable securities have a low risk to the principal, and the investor receives a return in the form of interest based on the specific fixed-income security. Whereas, The intervals at which interest is paid can be quarterly, semi-annual, or annual. Capital invested is returned to the investor at the conclusion of the term of deposit, also referred to as the maturity period.
An example of a fixed income investment is:
- Firstly, Banks offer fixed deposits
- Secondly, Bonds issued by government-related organizations like NHAI and HUDCO,corporate-issued bonds
- Thirdly, Bonds issued by the Indian government
- Last but not least, The typical return on a fixed income investment ranges between 8% and 11% as of June 2014.
Equity
Accordingly, Purchasing stock in publicly traded companies is an example of investing in equities. Even so, Shares are exchanged on the National Stock Exchange and the Bombay Stock Exchange also known as NSE and BSE.
Also, When a person invests in equity, there is no capital guarantee, in contrast to a fixed income instrument. As a compromise, the returns on equity investments can be quite good. Indian equities have generated returns with a CAGR (compound annual growth rate) of roughly 14 to 15% over the past 15 years.
In addition, Long-term returns on investments in some of the best and most efficiently run Indian companies have exceeded 20% CAGR. Such investment opportunities require skill, diligence, and perseverance to identify.
Long-term returns on investments in some of the best and most efficiently run Indian companies have exceeded 20% CAGR. Such investment opportunities require skill, diligence, and perseverance to identify.
Real Estate
Furthermore, Transactions involving the purchase and sale of both commercial and noncommercial land are a part of real estate investment. Examples of typical transactions would be those that occur in sites, apartments, and commercial structures. Rental income and capital growth of the investment amount are the two sources of income from real estate investments.
Transaction process, which involves document legalization, can be quite complicated. Real estate investments typically require a sizable cash outlay. Returns produced by real estate are not formally quantified. It would therefore be difficult to comment on this.
Commodity – Bullion
Especially, One of the most well-liked investment options is to buy gold and silver. Over an extended period, gold and silver have increased in value. In the past 20 years, investments in these metals have generated a CAGR return of about 8%. Gold and silver investments can be made in a variety of ways. Especially, , Exchange Traded Funds or jewelry are two options for investing (ETF).
An investment note
Clearly, Investments should be well-balanced across all asset classes. It is a good idea to spread your investment across several asset classes. Asset allocation refers to the process of distributing funds among different asset classes.
Undoubtedly, A young professional might. For example, take on more risk given his age and the years of investment he has under his belt. Generally speaking, investors should invest about 70% of their available funds in equity, 20% in precious metals, and the remaining 30% in fixed-income investments.
According to the same logic, a retiree could allocate 80% of his savings to fixed income, 10% to equity markets, and 10% to precious metals. An investor’s risk tolerance determines the ratio in which investments are spread across asset classes.
What should you know before investing?
Definitely, Investing is a fantastic option, but you should be aware of the following things before getting started.
1. Risk and return are mutually exclusive. Higher return at higher risk. The return is lower than the risk.
2. Best course of action, if you want to safeguard your principal, is to invest in fixed income. It is considerably less dangerous. When you adjust the inflation return, though, you run the risk of losing money. For instance, receiving a fixed deposit that pays 9 percent when inflation is 10 percent results in a net loss of 1 percent annually. Investors who are extremely risk-averse should consider fixed-income investments.
3. Real Estate investment requires a large outlay of cash and cannot be done with smaller amounts. Also, Liquidity is another issue with real estate investment – you cannot buy or sell whenever you want. Moreover, You always have to wait for the right time and the right buyer or seller to transact with you