Investing in its simplest terms is this: Making your money work so that it makes more money for you. The great thing about investing is that it’s money that’s working. Unlike people, money doesn’t get tired, it doesn’t get sick, and it doesn’t get burned out. All money needs is a good master who knows how to invest. know more about for investment from below..

Many investors, especially the small investors, do not often possess adequate expertise/ knowledge to take informed investment decisions. Many of them are not aware of the risk-return profiles of various investment products. A large number of investors are not fully aware of the precautions they should take while dealing with the market intermediaries. Many are not familiar with the market mechanisms and practices as well as with their rights and obligations. These are substantially fuelled by the huge rewards that some investments have the potential to offer. At the same time, wrong investment decisions can lead to huge losses too.

“Investors Beware” should be the watchword. As all investments have some risk element, this should be borne in mind by the investors. If caution is thrown to the winds, they have only to blame themselves. Investing well has a secret formula – having the right information, planning and making good choices.

Why should I invest my money?

The money you earn is partly spent and the rest saved for meeting future expenses. Instead of keeping the savings idle you may like to use savings in order to get return on it in the future. This is called Investment.

The biggest enemy we are all fighting is inflation. Inflation is the general increase of the prices of goods year after year after year. Inflation hits everything from our basic necessities and our comforts in life. Nothing and no one is exempted.

When my mom was still a college student, her allowance was only P5.00 per day. She told me that the UP Ikot jeep cost only 35 centavos. A complete meal was only P1.00. At three meals per day, she would be able to set aside P1.00 per day for her monthly dorm fee of P30.00

My father, on the other hand lived on P1.00 per day when he was still in elementary. He said that for 50 centavos, you could already buy a piece of pan de coco. And that’s what he bought every day

Today, it would be extremely difficult to survive on P5.00 a day. With P1.00 you can only buy a piece of candy, not a complete meal. And for 50 centavos, you can get a photocopy of a piece of paper, not a piece of bread.

Whether we like it or not, the prices of food, transportation, rent, electricity and other necessities will continue to increase. And in the same way, the things that a peso can buy will decrease. If this guide is still being read in the next 20 years, one peso of that day might be equivalent to one centavo of today! This is an inescapable truth.

What would happen if I don’t invest?

Inflation is an invisible enemy, so you won’t notice the impact today or tomorrow. After all, a 5% increase per year, is just a 0.4% increase per month, and a 0.01% increase per day. It’s impossible to notice on a day to day basis.

The full impact of failing to fight inflation will be realized when you decide to retire. If you do not have enough money for your retirement, you’ll spend the last of your days being financially constrained, and a financial burden to the ones you love most.

Imagine that you’re 65 years old and no longer working. Who will pay for your food, water, electricity, medicines, and doctor’s fees? Are you sure your pension will be able to cover for all of that? If we follow Filipino culture, it would be the kids who will support the parents once they retire. If your children are just starting to build their own family, you’ll be competing for resources against your own grandchildren! Is this something that you would like? Is this something you think your kids would like? (I know the picture I’m painting here is very grim. That’s because from an economic standpoint, that’s how it really is.)

I’ll just invest when I’m already rich.

This objection is one of my favorites. It’s just so silly! Waiting until you’re rich before you start investing is like saying:

  • When I get promoted, then I’ll work harder.
  • When I get a girlfriend, that’s when I’ll cut my hair (a friend of mine who had long and untidy hair actually said this)
  • When I get my big break, I’ll give it my all. (For a long time, I believed this!)

But we all know that it’s the other way around!

When you work hard, that’s when you get promoted. When you give it your all, that’s when you get your big break. Finally, when you invest, that’s when you’ll be rich. And when you get a haircut…

So where do I invest?

There are many investments available aside from the stock market. There are time-deposits, bonds, mutual funds, foreign currency, precious metals and many others. For now, we’ll talk about the most basic ones. As we go through each one, keep in mind that you don’t have to pick just one. In fact, successful investors put their money in different investment vehicles. But when you’re just starting out, it’s easier to learn them one at a time.

Investment Vehicle What is it?
Time Deposits A time deposit is a fixed-deposit which cannot be withdrawn for a certain period of time. Generally, the higher the amount, and the longer the period, the higher the returns. In the short term, time deposits are useful. However, for wealth building, they are almost useless because their returns are always lower than inflation.
Bonds A bond is one way an institution borrows money. When you purchase a bond, you are essentially lending money to that institution. In return, you are paid interest during the life of the bond, and get paid the principal amount of the bond at the end of the term.
Mutual Funds Mutual funds aren’t actually investment vehicles; rather, it’s a method for investing. Mutual funds are a collective investment scheme. This means that money from different investors is pooled into a single fund. The pooled funds may then be invested into bonds, or equities, or even foreign exchange. Mutual funds are always managed by an expert called the ‘fund manager’.
Unit Investment Trust Funds (UITF) A UITF is similar to a mutual fund in a way that both are collective investment schemes and that they are also managed by a fund manager. There are some technical differences; however, it isn’t relevant to the discussion at the moment.
Equities (the Stock Market) The stock market is a place where you can invest in ‘publicly owned’ or listed companies. By buying shares of stock in a company, you become a part-owner of that company. And as a part-owner, you participate in the company’s ability to grow and make money.

Power of Compounding

The most powerful tool for creating wealth safely and surely is the magical ‘power of compounding’. If you park your money in an investment with a given return, and then reinvest those earnings as you receive them, your investment grows exponentially over time. Illustratively, if you set aside a sum of say Rs 5,000 every month from the age of 25, earning interest at the rate of 10% p.a., in 60 years you will have with you funds worth more than Rs. 1 crore. However, if you start at 40 with the same amount and rate of interest, the fund accumulated will amount to only around Rs. 33 lakh. Hence, it is always advisable to start savings early to enjoy the benefits of power of compounding.

Before investing in a Market

Before investing, it is always wise to learn the Basics of Stock Market. We have compiled articles and tutorials on the Share Market Basics. Also included here explanation of Stock Market Terms and jargon used by people involved in trading stocks and shares. Whether it is Bombay Stock Exchange (BSE), National Stock Exchange (NSE), London Stock Exchange (LSE) or New York Stock Exchange (NYSE), trading terms or more or less similar

Savings v/s Investing

Saving is the excess of your income over your expenditure. Generally, this lies in the savings bank account or in fixed deposits with a bank. The money is very safe, earning a small rate of interest and it can be in hand as and when required (high liquidity). On the other hand, this money could be invested for meeting long term goals. While some investments may rise or fall in value over time, prudent investments would earn a lot more than the banks savings account.

It is important to take into account the effects of inflation on your investments. (Inflation is the rise in prices of goods and services. As the prices of these increases, the value of the rupee goes down and one will not be able to purchase as much with those rupees as one could have in the last month or last year). Savings rarely beat the inflation rate; investments can.

In essence, the difference between savings and investment is that savings is simply idle cash while investments help your funds to grow over a period of time. One can meet his short term needs with his savings but to meet his long term goals, he needs to make investments. Savings primarily help to protect the principal while investments help to earn returns beyond the inflation rate.

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