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What is investing?

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Our previous post revealed the perils of high spending and how controlling spending habits can help you to accumulate more savings. Now, assuming that you’ve made some savings, what are you going to do with your savings?

We know you have many options. The best option, however  is to Invest it. You have to make more money with your savings. Because, savings alone will not keep you financially safe. Some day, you have to retire and your monthly money flow will come to an end and you need alternative sources of income to live your remaining life peacefully. Investing is the way to achieve this.

Investing.

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Investing means to make more money with your savings. It’s about making your money work for you. When you invest, you buy assets like shares, mutual funds, gold, real estate etc when it’s available at a bargain and sell when the prices go up. In some cases you might get a bounty in a very short time and in some cases, you may have to wait for a long time, say 5 or 10 years to get a real appreciation for your  funds. So, generally speaking, investing involves committing your money for some time – it could be 1 month or 1 year or 10 years. You have to wait for your rewards.

Investing should be done as early as possible – We suggest to begin investing as early as you can. Delaying investing results in committing more funds at a later stage in life.

Investing should be done after valuing the asset – Investing cannot be done in any asset without valuing it. As we said in the paragraph above, investments should be made when assets are available at a bargain. Generally, due to demand, the offer price of assets like shares and real estate will much more than the real value it has. Investing in assets at high prices will not help to grow your savings and hence, the real value of these assets will have to be found out. If you don’t know how to find it out, there are experts who do this job for you. A prudent Investor looking to grow his money will buy assets only when it’s at the correct value.

It’s also about growing your money prudently – Money is a weapon that’s to be used very carefully and any reckless attempt to use it to make quick profits can backfire within no time resulting in a total ruin of your life. By being ‘prudent’ we mean, determining an action or a line of investing that’s practically wise, legal and careful. When you look around for opportunities to invest, it’s natural to stumble upon ideas like multi level marketing of certain financial schemes or money chains etc that may seem to be too good an opportunity to make a quick buck. It’s important not get tempted by such investment offers. Any investing decision you take must be practical, legal, safe and capable of creating wealth for you in the long run.

Rewards from investments vary – Investments range from risky types like stocks to very safe ones like fixed deposits. Depending on the type of investment you’ve made you get return in the form of rent, interest, dividends, premiums, pension benefits or appreciation in value. The more risk you take, the more you earn as rewards.

The risk in investing is that, all investment choices are made at particular point of time according to the preference of the investor by considering the risk factors that’s known or reasonably estimated by them. However, the future is always uncertain. Preferences of the investors can change, their goals can change, their investing capacity can change, the overall economic scenario can change and the positive factors that attracted them to a particular type of investment can also change. So, investment will have to be reviewed from time to time in the light of new information, changed expectations and preferences.

The purpose of investing would be different for different people. . Normally, a person would invest with one or many of the following objectives in mind – A Regular Income, creation of wealth, preserving your capital, planning for retirement life, education /marriage of his children, to start a business or any other particular objective that an investor has in mind.

One golden rule of investing is that – risk  and rewards are directly related – higher the risk, higher the chance for rewards. We have explained the relation between risk and return in a separate post

Key ideas:

  • Investing helps you make more money.
  • Investing must be done at the right time in the right assets.
  • Risk is part of investing.

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