5 Reasons: Why You Should Start Investing?

25 Jul 2020 Read 1996 Views

Who said we hate exercising?
To be honest, we love it. And we had to do it anyway. If not, then tell me why we run, walk, and hunt for money. But what if I say you can make money sleeping. You can just relax and still make money. All you have to do is start investing. Investing gets us in the next fastest flight towards victory.

What is investing?

In short, investing is the act of allocating funds into various financial assets to put your money to work and earn from the resultant income generated. Ideally, this can act as a secondary or, in some cases, primary income stream and help you fulfill your financial goals. We mostly view only the handful of drawbacks that exist. And eventually, hold a blind eye towards the tons of benefits it brings along. Let's not do that anymore. It's time to explore the opportunities the world of investing has in-store for you. To start off with, let's uncover the distinction between saving and investing. 

Saving vs Investment

Growing up, we would have listened to a ton of stories. Today be ready to add one more to that collection of yours. 

Two seeds were given to two little boys. They were asked to make the optimum use of it. They had to survive the next year's drought with this. One boy saved it from being used for the next year. Another put it in the mud. Who do you think would have survived the drought? 

Similarly, saving and investing though, might be similar holds large contrasting characteristics. But saving, however, will be the first step towards investing. 

A majority of the population often tend to mix up both the terms. But saving and investing are two distinct terms in the world of finance. When you are consciously setting aside a portion of your income in such a way that it is safe and easily accessible, then you are saving. On the other hand, purchasing stocks, bonds, or any other financial product with the goal of making money through capital appreciation, dividends, or regular payouts is called investing. While both offer a considerable return on the capital, the rate received on investments is a lot higher than that on the savings. 

Investments are not only for wealthy people with bags and bags of money. It is for anyone hoping to improve their financial standing and acquire the taste of financial freedom. 

Are you not convinced? Let me elaborate. A few pressing reasons that will make you change your mind about investing.

Top 5 Reasons why investing is important:

  • Good Investment Returns

The risk lies everywhere. Nowadays, even banks seem to be risky, with the number of defaults increasing. But the risk is what you pay for the reward. If you wish to win the race, you must first run for it. So expecting return without taking a risk is absurd. But choosing a place that gives you the right return for the risk that you take is essential. Banks pay an annual return of approximately 4-6% on your money. But when you make the right investments, you can easily make a 10-18% return on your capital. However, the return might vary on various factors. 

  • Accomplish Financial Goals

We might be holding numerous wishes and financial goals waiting to be fulfilled. All of them can be accomplished if you follow a disciplined investment path. Whether it is a short term goal such as buying a car, house, or long term goal like retirement, the marriage of children, you can achieve it all if you make proper investments that align with your objective and risk profile. For example: Say you want to go on a world tour. But, unfortunately, your income cannot accommodate that wish of yours. In such a case, a well-crafted and perfectly planned portfolio will be your wish-fulfilling fairy. 

Retirement, though an important part of life towards which one should be planning, is the least of our concern. But a shocking fact is that by 2041 59% of the population will be retiring. Which means the entire 59% will depend on either their children or their savings. But a proper plan can keep you financially independent even after your retirement. You will not have to depend on your children to take care of you. Instead, you can rely on the investments which you built to pay for you. Sounds good, right? 

  • Win over inflation 

Inflation is one of the crucial reasons as to why one should invest. As per estimates, the annual inflation in India exceeds 5%. And food and medical inflation is approximately 9.8% and 5 %, respectively. In short, a loaf of bread which costs you Rs.30 today will cost you roughly around Rs.50 after five years. Hence, the returns from your savings account will not help you in combating the raging prices. You will need a more effective tool. 

Stock markets are known to give an average annual return exceeding 12%. So you will not only be able to win inflation but left with extra money to buy you a new car. 

  • Tax benefits 

Another fact that will make investments attractive is the tax benefits received. In a way to encourage people to make investments, the government offers various tax rebates. You can reduce the tax you will have to pay using schemes like ELSS, section 80C, etc. Thus, investing allows you to achieve two goals at one shot.

Hence you will not have to spend your hard-earned money paying up all your taxes. Instead, you can double them up legally by investing in your preferred asset class. 

  • Being a Shareholder

XYZ company has a wonderful idea that would shape the future. But unfortunately, they lack the funds to fulfill it. So by investing, you are giving them an opportunity to get their business on the path of growth. On the other hand, you will not only own a part in the business but also be entitled to the profits. 

Thus, you can own a part of your favorite company. A part of something bigger and better. Hence, you can be a part of someone's dream while getting some attractive returns. So you will be able to hit two birds at one shot. 

Methods of investing

  • Index investing- 

This is a passive investment strategy. If you are a busy bee who has no time to look over your investments or someone who hardly knows about investing, then this is the one for you. This can be a good place to start. Here you simply put your money into index-based funds or stocks. 

  • Dividend investing- 

Are you looking for a passive income stream? Then you should consider allocating funds towards mutual funds or stocks which generate regular income in the form of a dividend. This sort of income can help you in meeting your day-to-day needs like EMI, etc. 

Check out to get an idea: Ticker

  • Value investing- 

Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value.Here the investor picks up stocks that are undervalued but have enormous potential to grow over the period. These types of investments are ideal for long term investors.

  • Technical trading- 

Do you like reading charts and historical trends? Then this type of investing will be your comfort zone. Technical trading involves analyzing and reading previous and historical trends and predicting future movements. 

Conclusion

Despite all the factors specified above, one crucial factor as to why you should consider investing is "the learning experience." Investing teaches you to handle money effectively. It showcases the importance of saving and the drawbacks of debt-based spending. I personally learned as to how things operate and how a small change in our daily life can change the entire economy in ways beyond our understanding. 

Conclusively it is extremely easier and fun to invest than you think. Many have done it, and many are doing it. All you have to do is just open a Demat account, brush up the basics, and you are all set to go. Wait! that's not it. Before you get on with your chores, why not share one little experience which you have acquired or think you will. 

About the Author: Varishika Dinesh | 43 Posts

Varishika is on the verge of successfully completing B.Com. Nothing excites her more than reading books and watching movies. Business, finance, economy? You have her attention.

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