What is Investing

“Many earn money and save money. But only a handful are able to create wealth. There is no magic formula or shortcut for wealth creation. Stay disciplined, focus and give time. Find out about to implement ideas and let your money work as hard as you do.”

What is Investing?

• A few people stumble into financial security. They are born with a silver spoon. They get what they want without even asking. But for most people, the only real way to attain financial security is to save and invest over a long period of time. There is no two ways about it.
• To be financially secure, you will need to have your money work for you. That is the essence of investing. Imagine you earn ₹ 50,000 (take home pay) at the end of the month. Your household expenses are ₹ 40,000 per month. Will the savings of ₹ 10,000 lying in your bank help you when you have no income?
• If you need ₹ 40,000 to survive for a month, you will need to save for 4 months (₹ 10,000 x 4 = ₹ 40,000) It is not possible to save for 4 months without earnings for 4 months! This is where investing comes in. You have to make ₹ 10,000 saved per month today become ₹ 40,000 sometime in future. It is possible to grow your money.
• You do not need to a scientist, MBA or genius to invest. You will need to know a few basics. Then, form a plan. Finally, get ready to stick to your plan. While there is no hard and fast guarantee that you’ll make money from investments you make, following through with an intelligent plan will enable you to get where you want to be.

Investing a commitment

• Investing is simply an act of commitment. You do this in an expectation to earn additional income or profit. Nobody invests to lose.
• Legendary investor Warren Buffett has an interesting way of defining investing. He calls it the process of laying out money now to receive more money in the future. There is only one goal in investing i.e growing your money over time. There is substantial proof that money grows when invested in the right places.
• For example, mutual funds could’ve grown your investment by 22% every year in the last 10 years. This means 1 lakh invested 10 years ago would’ve become 7.30 lakh today. Similarly, money invested in bank deposits have grown by 6–8% every year. Money kept in gold has grown by 6–7% every year. When you earn your salary or income, there is no commitment to spend it. Yet, spending takes away a lot of your income because it is easy to spend. It gives instant gratification. Clothes, entertainment, travel — — all of them make our present life appear wonderful and enjoyable.
• Investing requires prioritizing of our financial future over our present desires and lifestyle. Investing is a way of setting aside small amounts of money while you still can. You can be busy with life, but don’t forget to invest. Investing is a means to a happier ending. It works. Try it.

Investing is different from Saving

• Saving and investing are used interchangeably. To the common man they seem the same. But, investing and saving are not the same thing. There is a difference. Let us understand with an example. Dhanesh earns ₹ 60,000 as a software engineer. At the end of the month, he has ₹ 15,000 left in his bank account. Is ₹ 15,000 saving? Yes. If he puts all the money into stocks and bonds, his ₹ 15,000 saving becomes investment. If he keeps the ₹ 15,000 in his bank account, it remains just saving. Investing starts from saving.
• As you know by now, saving is setting aside money you don’t spend now. Saving is money you want to be able to access quickly with no risk. There are different financial saving options. Not all savings are investments. Investing is buying assets such as stocks, bonds, mutual funds, gold or real estate. Generally speaking, any investment can be categorized as income investment or growth investment.
• Let us use an example to understand this better. Consider this. If you deposited ₹ 4,000 in a savings account at 4% annual interest, it would grow to ₹ 4,160 a year (before taxes). The same ₹ 4,000 invested in a mutual fund earning an average 10% a year would grow to ₹ 4,400 (before taxes). MF investments generally grow faster. Making the correct choice between saving or investing will depend on your goal. If just saving works for you, you should only save. But if saving alone cannot help you, you need to take the help of investing.

How to Invest?

When figuring out how to invest money, it is always better to start with the very basics. These investing basics include what the goal of investing is as well as where to invest money. When you start something new, there are always butterflies in the stomach. There is both joy and fear. The entire experience of how to invest can vary depending on the investors’ experience.

• Investing for beginners — When you invest money for the first time, you have no track record. This is both good and bad. You do not have any expectations or burden. Simultaneously, your lack of experience makes you vulnerable to mistakes. Always remember the golden rule of investing. You are doing an investment with the belief that the value of that investment will grow over time. Never forget that investing is not a get-rich-quick route. Both experienced and inexperienced investors need to stay invested to see their wealth consistently grow. With the requisite time and discipline, even small sums of money can be turned into fortunes over time. It is vital that you select the right investment or investments.
• Investing for experienced — If you have some experience, you already know how this game works. You may like to think you know some things, but truthfully every investing journey is unique. Hence, it is important to have your feet on the ground and not expect miracles. The fate of an investment does not change because you have decided to give it a try. There are thousands of investors selling and buying the same investment as you are. Having a calm mind and belief helps the process immensely. A new beginner may get negative surprises. But, as an experienced campaigner, you know patience pays.

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Originally published at https://www.yourcaguide.com on June 20, 2022.