What is Investment?
Investing is the process of putting away money on a regular basis, so that it can be put to work to yield returns. It is the process of putting money into assets such as stocks or bonds in the hopes of seeing it grow. Money when invested in the right manner can yield substantial rewards and returns.
Why is Investment important?
It is important for individuals to make some sort of investment because of the following reasons:
- Investments are the only way to ensure financial security. Money that is wisely invested can yield returns and serve as an alternate source of income. It can help in increasing your wealth over time. You are eligible to receive interest on cash investments and this could increase the net worth of your investment over time.
- Investing regularly and wisely can help you to retire early. In the words of Warren Buffet: “If you don’t find a way to make money while you sleep, you will work until you die” So, it is not just enough to have an income, you need to take the necessary steps to invest your money in profitable ventures to ensure that you do not need to work for your needs, all your life.
- At times of a financial crisis or difficulty, it is always good to have some sort of savings to fall back on, so that you can tide over the difficult times. If you do not invest when you have a regular income, you will not be able to save enough for those rainy days.
- Some investments come with Tax benefits. Investing in certain types of Government bonds, securities and debentures often lead to tax exemptions, and this is definitely beneficial for the investor. The Government usually releases such bonds from time to time and the public can take advantage of these investment options.
Why do people avoid or delay Investing?
- People generally put off investing because they have the misconception that you need a large sum of money to begin investing. In reality, you do not need a large amount to begin investing. Money gains value over time because it accrues interest. The interest amount is added to the principal invested, and the accumulated amount will again accrue interest. This is called the power of compounding.
- People often compare their investment methods and results with others and feel that they are not competent enough, if they do not achieve instant success or huge profits. It is important to note that there is no one-size-fits-all investment strategy out there. The results vary from investor to investor because the investment decisions taken by a person will not be the same as the ones taken by his family or friends. No two people have the same investment strategies, so it is not possible to duplicate results. The important thing is to get started and make progress, no matter how small.
What are the steps to Smart Investments?
For an average beginner, here are some basic steps to making those smart investments:
- Start Investing Early: The best time to start your investment plan was yesterday. If you were not able to do it, then it is today. You should get started on investing your funds as soon as possible, as time is money when it comes to investments. The sooner you start, the longer you can stay invested and this will ensure that your returns are higher.
- Start with a Plan: Before you invest, do an audit of your income and expenses and ascertain how much funds you can put towards investments on a regular basis. Make a plan to regularly divert a fixed amount from your income towards investment. Also review the various investment options available to you and choose an option that best suits you. Do not go into investing your funds, without studying the investment method that you wish to adopt thoroughly.
- Curb your expenditure: Once you are in the mindset to begin investing it makes sense to cut down on any avoidable expenses. This is because you can save and invest every penny that you are not spending. Make a list of your expenses and chart a plan to avoid anything that can be avoided. Although this can be quite demotivating in the beginning, the fact that you have managed to divert funds from expense to investment will serve as motivation for the future.
- Diversify your investments: Don’t put all your eggs in the same basket. When you start investing, it will be tempting to allocate all your funds into risky ventures or those that promise high yields or returns. Avoid this temptation as the risks are quite high on these investment options. Always have a bouquet of investment options ready for you, before you decide where to put your money. Financial experts often advise that having a diverse portfolio of investment is the best plan when it comes to investing your money.
- Seek expert advice: Investment is not everyone’s cup of tea. That is why we have experts in this field who can provide professional advice on how to invest our money in the best manner possible. When we are not sure of something, it is prudent to seek advice from the experts on the matter. Nowadays, there exist financial gurus who can sit with us, review our details and provide us with a fool proof plan on how to multiply our investments. Do not shy away from seeking expert advice if you find yourself in doubt.
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