Last year, the world experienced the crisis of the century, which, not unlike a war, is still affecting the lives of people around the world. From this experience, among other things, arose the need for security, be it health, social safety, politics, or finance. In today’s economic climate, making regular money is not enough for financial security. Making money by working for yourself or others is the key to building a secure source of income. But to make a lot of money from these salaries over time, you need to start “investing” your money so that it grows in value over time.
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Income provides the natural starting point for investment planning because you cannot invest what you do not possess.
Inflation – what is it and how your investments can help overcome it?
Inflation is a periodic hike in the prices of commodities due to different factors. Inflation occurs when the money supply increases in proportion to the level of production in an economy. Prices rise because more money is spent on acquiring fewer products.
As an investor, you should explore investment avenues with returns equal to or greater than inflation. For example, if stock returns are 4% and inflation is 5%, the actual return on investment will be less than 1%, and you should avoid investing in such places.
If the value of long-term assets such as stocks and bonds rises or earns interest, they are protected from inflation. One of the primary reasons most investors invest in bonds, stocks, and mutual funds is to preserve their savings from inflation.
Therefore, you can protect your long-term investment returns by investing in various inflation-protected securities like the Inflation-Indexed Bonds by the Reserve Bank of India. These are financial instruments that develop with inflation and are therefore unaffected by inflation risks.
Why should you invest?
A person’s investment goals depend on their income, age, and risk tolerance. The following can be the chief reasons for you to invest your money:
Building wealth and legacy
You need to invest with the view to build your wealth. This means you have to save from your earnings vigilantly and invest those savings over time. Whether it comes from dividends or interest earned, the investment income can be used further to build wealth from the same financial instruments or other avenues.
To achieve your goals
You might have set some specific goals for your life. Well, to realise them, investing is a faster and safer way to go forward with. For example, if you dream of buying a home, the plan you create will motivate you to invest.
The crucial thing is to distinctly state your goals and how much money you will need to achieve them. Your goals can be short-term, medium-term, or long-term. By investing your money according to your plan, you can increase your wealth and achieve your goals faster without working extra years and even retire early.
Financial security
People need financial security, and it comes with more money. If you have enough money that you made from, say, your investments, it can help you avert many challenges of life with financial backing. An example of this can be a costly life incident, like a major health crisis or the destruction of your house by a disaster. Investments and monetary returns will provide you with financial security to deal with unforeseen situations.
Many people confuse savings and investments with being the same concepts, but they are not. Your savings correspond to the income you have for future expenses. However, investing means the investment of your savings in financial instruments or products such as stocks, bonds, real estate, etc., with the hopes of capital gains and financial returns.
In conclusion, it is never too late to begin investing. You may earn dividends if you invest in shares, rent from a property you lease out, or interest from bonds. Remember, regardless of age or income, all investments start with the first rupee.
