Life in general is very finicky and quite uncertain. It would not be completely incorrect if we were to say that life is regulated to a great extent by the funds that we have and the finance we manage to pool together for the later days. Being completely honest with oneself, one can easily tend to accept that earning capacity is limited to at most of 40 to 50 years if one goes by the normal professional timeline. Post that, only savings and retirement pension come in as the sole financial support, in case one has not opted for investments. At the barebones level, investments are nothing but savings that are craftily converted into higher return paying options over a relatively longer period of time. Let us take a look why investing is so crucial for everyone.
Primary Reasons to Consider Investment Options
There always has been sufficient reason for people to utilise their money in a better way. Valid reasons and logically backed actions are what form the core of a successful life, be it personally or financially. Just like one would take proper career decisions based on how the market demands for better skills, investments need to be treated in the same manner. The major reasons why one would want to invest could be enumerated as follows –
1. Guarding against Inflation
2. Building a Financial Corpus
3. Preparing a safety net for the later years
4. Allowing Wealth Creation
5. Saving for Retirement
Let’s dive into each of these reasons a bit and get to know them better.
Guarding Against Inflation
Inflation is a constant reeling headache for financial analysts and the average Joe alike. Rising inflation not only makes your salary look a lot lesser, it also makes it difficult for people to save enough for the future. Going on the same lines, if one decides to save funds only in one’s savings or current account, it is not going to be worth much since the interest rate offered by banks on such accounts is typically lower or just about equal to the inflation rate. Here, charting out an effective investment plan that offers better return over time can be achieved by utilising one’s savings in mutual funds and stocks. Though such investments are subject to market risk and can basically go south if the market underperforms, the longer tenure of such investments makes them more or less immune to slight fluctuations of the market. For an extended period of investment, one achieves a much better return that compensates for the inflation rate as well.
Building a Financial Corpus
Investments do not always mean liquid cash that has been put into stocks and trade. They can also form parts of precious metals, gems and personal or commercial property. Such investments can really fetch a good return in many cases. Gold, silver and jewels can be traded in at almost any time during one’s life to obtain a significant amount of funds. Though the price of precious metals doesn’t always look up, it is very rare for them to lose out on a very large margin. Owned properties near prime business locations and highways can be a real boon in terms of investment. As time passes by, the value of such properties can only increase. One should always remember that we are living in a world that is largely dominated by the circulation and use of fiat money. Since fiat money doesn’t have a commodity associated with its value, it is always a good idea to invest in something much more concrete, like precious metals or property. In that manner, even if you do not have liquid cash at hand, your money has a more definite value as compared to others. Not to mention that when the investments are cashed in, you end up with more cash than what you had put in.
Preparing a Safety Net for Later Years
Though from the first job or the first sale of one’s product or service one generally starts a phase of increased income in the later years, the same income is bound to stop or deplete once the primary mode of income stops. The only financial support that comes into play then is the amount of savings one has and an optional pension that one may or may not receive. In such cases, a proper investment plan will allow one to have surplus funds for retirement. That can help in sundry expenses and sudden requirements that can crop up, like an impromptu vacation or an unexpected spell of illness. Getting a Unit Linked Insurance Plan can be a very wise decision here. It can provide returns as well as offer a life cover, should in case anything untoward happen to you.
Investment in real estate and mutual funds allow many different ways wherein one can spend their money wisely. Equity options in mutual funds allow for an aggressive growth of money that has been used in mutual funds. By observing the market carefully and keeping a track of the growth of your investments, you can gradually start by separating off the profits you make from equity funds and pile them on to fixed income assets. That way, one can protect the profits made and still allow the initial investment to grow through a longer tenure. At the end, when one actually gets the return on the investments, it would be much more than the initial funds put in. Real estate investment has its highs and lows as well. But if care has been taken to buy and hold properties in locations that will be at the centre or around business hubs or transport locations, such properties can only be expected to gain in their value as time goes by.
Saving for Retirement
Contrary to what most people believe, retirement years are not completely free of financial responsibilities. Sure, you might spend less on eating out and conveyance, but at the same time, medications, hospital bills and frequent vacations might increase. Since there is nearly no professional timetable to follow, one tends to be their own boss. Engaging in hobbies, crafts and leisurely activities can rack up quite a few digits on your bills. An investment that starts paying out regularly once retirement kicks in can be a real boon during such times.
Source: Bank Bazaar