If you are a working professional who is earning enough to keep aside a small portion as savings, you definitely would have wondered why so many people nowadays keep talking about investing. ‘Investing’ is not a topic that’s touched upon at the high school level and therefore, as adults, most of us would find the concepts new and somewhat complex. If the unfamiliarity was not enough to keep us away from learning more about it, the concept has numbers involved! Big enough reasons for anyone to avoid the topic altogether.
Its importance is definitely quantifiable, and we will tell you why.
A rupee today is worth less than a rupee tomorrow
Ever given a thought to why things that cost Rs.5 a few years ago now cost Rs.10? Or put it another way – we can buy fewer things today with Rs. 5 than what we could buy a few years ago. This is essentially nothing but the erosion of the value of each unit of money with time. So, the Rs. 100 we had a year ago is worth more than the Rs.100 we have today, which is worth more than the same amount we will have in another year.
Essentially, the value of money erodes with time.
But, how do we stop our money from losing its value? That’s exactly what this blog is about! Keep reading to know why we invest.
Saving is NOT the same as Investing
If money is the vehicle, or the medium of transportation, saving money is like the engine. But to ride the vehicle for a long distance, i.e., to not lose money over time, you need to have an accelerator and gears. Investments are the gears and accelerator.
You can think of this as staying ahead of the curve by putting the money to work. Here’s how we can differentiate between saving and investing:
- Saving is being cautious while investing is being smart.
- Savings are meant for a rainy day whereas investing is for those rainy days + for fulfilling your dreams.
- Investing money is the way to become wealthy, saving is not.
Yesterday’s Rs. 10 is not the same as today’s Rs. 10
We all must have read or heard this at least once in our lifetimes – money saved is money earned. Or a different version of it. It can’t be more true. However, just as necessary is saving money, equally important is to not let it lose value over time.
The phenomenon that causes this erosion in value is inflation. In simple words, it’s a rise in the cost of goods and services. One ought to pay more for the same set of goods or services today than a year ago.
Coming back to the matter of concern, how can we prevent our savings amount from losing its value? The straight answer: it has to GROW.
Shelf life and refrigeration
What happens when we don’t refrigerate delicious food? Normally, its shelf life is reduced and it won’t taste the same. In the worst-case scenario, it rots away. Investing is like refrigerating, and shelf life is the value of money.
So, we can associate ‘saving’ with ‘having food’ and ‘investing’ as ‘savouring delicious food’.
But doesn’t investing involve risks?
True. Investing does involve risks. But this is not a blanket statement for all the investment avenues. Certain investments carry zero risk, a few others with moderate levels of risk and some that are really risky. We will let you know which ones they are.
Different investment options are available for people with varying risk appetites. If one emphasizes security, returns may be slightly less and vice-versa.
Now, the wisest choice for anyone thinking of safeguarding their savings would be to choose the least risky investment options like FD and PPF. If the same also offers fixed or predictable returns, it would be icing on the cake!
Mutual funds and equities are some of the more popular and easily accessible investment avenues that fall into the relatively riskier and better-than-FD yielding category. Non-financial assets like gold and real estate are other popular investment routes that are preferred by most people in India.
The type of products necessary for wealth creation and also gives an edge to the portfolio with diversification are now easily accessible! Learn more about why one should invest in alternative asset classes here.
Save it and don’t forget to invest in it.
To earn is necessary for a livelihood, saving for a rainy day is essential and investing the saved money is wise. Because we shouldn’t just survive but live our lives comfortably with a sense of security that our hard-earned money will not lose value with each passing day.
So, investing is nothing but ‘putting your money to work’ in action.
When you have saved enough to invest and are looking to explore investment avenues for diversification, do explore our high-yield fixed income investment opportunities here.
