Updated October 26, 2023
Why Should You Make Investments? A very Basic Understanding
Before we start with any explanation, let’s simply answer a few investment questions. These questions are very important to understand why you should make investments.
Question: If you have a day trip planned as you have to leave your family and go somewhere for a day, how much money do you think you will leave with your family?
Answer: For a single day, I believe Rs 5000 should suffice as you know you will be back the next day, and you can then take over the expenses.
Question: Similarly, if you are leaving your family alone for a week, how much money will you leave behind for your family?
Answer: Depending on your family’s requirements, you may leave behind 50,000, less, or more.
If you plan a trip for a month, leave behind a lacs of rupees. Similarly, you would want to leave even more money on a trip at the cost of leaving your family behind for the entire year.
You are working for your family and want to ensure that your family gets enough money to suffice their necessities and cover their emergency needs.
However, have you ever thought, what if you have to leave your family forever (in case of any unforeseen event)? How much money would you want to leave back for your family to ensure they get their necessities and save for their emergencies? How much money would be sufficient for your family to live a comfortable life if you had to leave them forever? The answer to this question for most people living anywhere on this planet is a NO; no, you do not know how much money your family will need if they do not have an earning member in the family.
Why don’t we Think about the Future?
Oh yes, the basic thinking of every generation is “think about the present and live in the present also includes letting the past go and thinking about the future is a waste”. Well, it is right to some extent if explained correctly. “Think about the present” means working hard enough in your present as you have only today in hand, and you never know what your future will be; working today will also improve your future. “Let the past go”: no point clinging to your past as it has no value. The time has gone and will never return; do not regret but learn from your past; make sure you learn from your past. “Thinking about the future is a waste” refers to time wasted. Work to protect your tomorrow and today instead of wasting time planning for the future.
Work to increase your savings and ensure the security of your investments. The emphasis here is on today for tomorrow. To explain this further, you definitely have a today to spend and expenses to cover. These expenses may include house exp (miscellaneous ones), expenses for your child’s education and other activities, your spouse’s expenses, etc. These expenses never end. But then, you are earning today. Tomorrow, you will not be earning; what about tomorrow? How are your child’s advanced studies going? What about an emergency, an unforeseen event? There are so many questions unanswered, so much that you need to answer, yet you have no investments for your future.
The thought of investments needs to come to your mind from the day you have your first salary. The reason for investments may vary, but they must be investments, not saving money and keeping the same in your pocket or some hidden wallet in your wardrobe. Keeping money hidden is dead money that has no value. Investments in a stock market, insurance, or mutual funds are much better as your money fetches your returns and rotates in the market instead of stagnating in your pockets.
Let’s sum down everything and give you not one but many reasons to make investments.
Reasons to Make Investments
Everything you do in life has a reason. For example, you get married to settle yourself in life with a soul mate and lead yourself towards family life, you work to make sure that your family does not fall short of necessities, and you save money for various reasons like vacations, unforeseen events, etc. now you need to know why should you make investments.
Hit the Inflation Hard
Do you know it’s risky for you to keep money in your closet or under your mattress? You can never plan for when burglars will enter your home and rob you. You wouldn’t want to risk your family or your life. Keeping your money in a bank, is it sensible? Does it give you enough returns? The answer is NO. Keeping the money with you is not rotating it in the market; it is keeping it dead. Remember, it’s not just you. It’s several other people with the same thinking of keeping their money at home.
This creates a need for more money in the market. A simple law of scarcity explains, “the scarce the product, the more is its value”, which means that the price for goods and services you pay will shoot up and will continue to shoot up for the money in the market is scarce. This increases inflation; to some extent, inflation is okay; however, it should not increase much. Investing keeps your money rotating in the market, maintaining constant inflation.
Pension and Retirement Savings
Focusing on today and the requirements of the day is important. However, these requirements will always continue. They will only increase with time and grow as you grow. Remember that you can fulfill your requirements today because you earn enough and can spend. What will happen when you stop working? What will happen after you retire? Employers today do not support you with a pension, as most of us work with private organizations.
Will you be able to pay for yourself and the other growing requirements of your family? Trust me, the feeling of depending on your children for your necessities is very horrible. A pension plan or a retirement plan can help you best in investments for your future, where you will never have to look up to your kids for your expenses.
Let your Money Work
You work hard to earn each penny, whether to spend on basics, luxuries or save. In the meantime, what is your money doing in the locker, safe, or bank account? Nothing, simply lazing around. Do you know your money can earn you money? When your money has the right direction and path to follow, it can earn you more than you expect. Yes, the path needs to be the right, either the market directly or the mutual funds or the insurance, to meet a goal. Focus on your future requirements; you will know where and how to invest. If you do not have the right investment knowledge, take an advisor’s help.
Meet Your Financial Goals
Each of us has financial goals, which may include your child’s higher education, retirement, wealth building, etc. All of these goals can be met by putting your money in the right direction in the right manner. However, your money lies aimlessly in your bank account and lockers if you do not. Your locker and bank account will fetch you less money to meet your financial goals. This is because your money is either stagnant or as good as stagnant when not invested correctly.
To build your wealth correctly for your future requirements, you must study the market properly and work towards the same; in case you need investment knowledge, you must seek advice. If you seek advice, you will realize that advisors consider many factors before suggesting an investment.
Increase Your Wealth
Investments are saving, and it is saving the right way. Remember, when in the market under a fund manager, an agent, a stock agent, or an insurance company, your money is put to work aggressively. It includes your capital money or investments, interest, dividend, higher NAV, etc.
In short, on top of your money, you are receiving money from the market for taking the risk of investing money in the market. Remember, the higher the risk, the higher the returns. It adds value to your investments; this helps you in creating wealth for your financial goals. You can meet your financial goals faster, as your money will increase more quickly.
Secure your Family’s Future Along with Yours
Money is money, and money in the market will always grow. You never know when you will need money and for what reason; the future is unknown to anyone. Hence, all you can do is save money. Yes, savings are extremely important. If anything goes wrong and you need money, you can withdraw it from the market and use it for emergencies. God forbid that if anything happens to you, your family members or legal heirs can use the money to meet their basic needs or continue the same investments. You can always count on your money for your family or your requirements. Remember, if your investments are invested rightly, they will always give you more than you expect.
Investments have Risk —the Higher the Risk, the Higher the Return
No one will give you money or returns on your money for free; there is some reason for paying you such high returns. The reason is the risk involved in investing your money in the market. The risk is the fear of losing your money in the volatile market. This means if the market is up, the stock price is up, and you get better investment returns; however, in case of recession or when the market falls, the returns drop to an extent where you can lose even your capital money, which is the money invested by you.
In such a situation, you should never panic and remain calm as these situations recover when the market recovers. Getting panicky and withdrawing your money from the market will put you at a loss. Just stick around there and wait for the market to stabilize and grow. In fact, in the low market you can, you must invest and make the most out of the situation to benefit from it.
Learn how to Invest on a Timely Basis and Systematically
A number of companies and investments allow you to invest systematically, be it annually, yearly, quarterly, or even monthly. You have options of investing as low as Rs 500 monthly by companies. You can take any suitable plans and start investments; this will get you in the habit of saving money and investing it correctly.
Conclusion
It is extremely important to understand why you need to and should save; however, saving needs to be done correctly, that is, by investing your money in the market via stocks, bonds, debentures, insurances, and mutual funds. Investments in the stock market give your money the right direction and much higher returns than a bank’s savings account. Investing in the market exposes your capital to risk; however, it does help you attain your financial goals faster by putting your money to work and not lazing around in your lockers or bank account. Investments will benefit you, the government, and the nation in growth.
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