Investing is essential to good money management. Is it true or not? If Yes, then let’s find out the reasons of Why Investing is Important and Why does anyone need to invest?
When you hear the word invest- Which is the first thing that comes to your mind? The expectation of earning returns, fear, risk, shares, mutual funds, gambling/speculation or something else? Well, I am pretty much sure that most of you would have thought of mutual funds. How great will it be if you have two sources of income? Just imagine! Wouldn’t it be helpful in achieving your own and your children’s goals?
There are just two ways of earning, first by working- either for others or for yourself and the second by putting your existing wealth to work i.e. investing. Most of the investors misinterpret investing with savings. But, if we talk about investing, it actually means directing one’s money or one’s savings into various asset classes in the expectation of earning returns out of it.
There is a great saying by Warren Buffet -“If you don’t find a way to make money while you sleep, you will work until you die.” By “other way” Mr. Buffet meant investing your present assets for fulfilling your future needs. So instead of keeping your hard-earned money in your banks or pockets or under the mattresses, put it to work and let it earn some returns for you.
Further Reading: Top Five Large Cap Funds
There is an old saying about saving and investing which goes like this – It’s not about how much you earn, it’s about how much you save. It’s not about how much you save; it’s about how much you invest. It’s not about how much you invest; it’s about how well you invest. And not about how well you invest; it is all about how long you invest. It’s not just any one of these but is all of these.
Below are some of the points which might help you in understanding that why investing is important.
1. ) Changing Social/Moral Values
Earlier parents used to rely on their children for their retirement needs. Call it a bitter truth but we all know that the moral values are depleting among young generations and hence you should not solely rely on them for your future needs. It is always better to create a retirement corpus for yourself and for creating it you have to invest a certain amount regularly towards it.
Inflation reduces your purchasing power over a period of time. On an average inflation remains around 6% p.a. So if you have ₹10 lacs today then its value will actually deplete in the future. Simply put, the things which you can buy now for ₹10 lacs will not be available at the same price in the future. Hence, it is of vital importance for individuals to invest. Not only this, the investors should look at the real rate of returns from an investment. Investing in FD or similar low return generating instruments will not be of much help. Every investor should allocate a certain portion towards equity mutual funds for higher inflation-adjusted returns.
3.) Higher goals/aspirations
Who doesn’t want to go on a vacation abroad or want his/her children to study in the best university whether in India or abroad? Well everyone does, right. There is no end to our desires and aspirations. Everyone is required and should sincerely save and invest for the achievement of one’s goals. Therefore, one should not put investing in second place.
4.) Nuclear families
Earlier families used to live together and support each other in each other’s hard times. But now the whole scenario has changed and people prefer to live alone and independently. With the increasing number of nuclear families, it has become imperative for every individual to invest for themselves and their family’s better future.
If you invest regularly for the achievement of your goals, it will provide a sense of security to you. Planning upfront for your future needs will help you in tackling the future requirements of money in an efficient and effective manner.
6.) Medical Emergency
Though most of the individuals hold health insurance policies nowadays but there are certain pre-existing diseases that are not be covered by insurers or might be the treatment cost is more than the amount of sum assured. So in order to cover those diseases as well, you should create a buffer in advance. It is always better to be prepared for any contingency that might arise in the future.
Where can you invest?
There are multiple asset classes where an investor can allocate his/her savings. There are basically four asset classes – equity, debt, real estate and gold. You can start investing through mutual funds if you want to invest in the financial markets of India. Mutual funds are the best instruments for an individual who wants to take exposure in equity and debt markets but lacks the knowledge for the same. An individual should link his/her investment to one’s financial goals.
Generally, common people choose to keep their savings in their bank account and at most invest in fixed deposits as they are secured. This, however, restricts an investor from earning potentially higher returns that are generated by mutual funds.
Further Reading: Business Today