Investment
What is an investment?
Investment means putting your money in an asset/a group of assets in such a way that with the passage of time the value of that asset/group of assets appreciates, in other words, increases the price of the same. It does not happen in a day or two but, after a certain period, let’s say for 6 months or a year.
Types of investments:
They are broadly divided into two categories:
- Financial assets (stocks, bonds, mutual funds, bank deposits, SIP, etc.)
- Physical/Real assets (Land, Buildings, etc.)
Risks associated with Investment
The most common Investment risk is losing money since we are investing in various kinds of assets to generate a return. This return generation is simultaneously associated with risk, generally, we say that ‘higher the risk higher will be the return’ but also know for a fact if the above statement is true then higher the risk higher the probability to lose money.
Why should you invest?
“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
-Warren E. Buffett
Why should you invest your money in any of the financial instruments? When you can easily keep aside a certain percentage of it in your savings bank account as a reserve or say emergency fund for 10 years. Well with the rise in inflation (where the purchasing power of money decreases) at a rate of around 7.5% per year is no justice to your hard-earned money so, think again.
It was only one of the factors there are several like creating wealth, a regular passive income through capital appreciation and dividends, financial independence, beating inflation, etc.
Example
- Let's take a stock of a company to understand the same, Reliance Industries Limited, a multinational conglomerate incorporated as a textile industry in the late 1960s got listed on the National stock exchange of India in July 2002 for Rs. 50 per share is currently trading at around Rs. 2500 per share with a humongous return of 4632% in 20 years.
- Assuming you are planning to invest traditionally as you don't believe in the stock market, then definitely go for it as in India average rate of home price has increased at a rate of 10.1% in the past 10 years.
