Why one should invest?
Now that we have understood what is an investment, the question arises as to why one should invest his money ?
To lead a comfortable lifestyle
Investments gain importance in today’s world, because just earning money is not sufficient to take care of our much needed comforts in life. All of us work hard for the money we earn. But most of the times we find that the money we earn is not adequate for us to lead a comfortable lifestyle. That is we want to live in a bigger house, we want to give our children better educational facilities, we want to own a car and we want to go on tours etc.
To fulfill dreams and goals
We may also have to fulfil certain dreams and goals which we have been nurturing in the back of our mind. These goals could be sending the child abroad for higher education or buying a luxury bungalow or a luxury car. Most of the times we can see that the money we earn is not sufficient to achieve above goals. In order to achieve our goals not only we have to work hard but we have to make, the money we earned work harder for us. That is, we have to invest our money to make it grow in size to achieve our goals.
To combat Inflation
You may think of saving some money from your earnings every month and keeping aside. But if you do not invest the same properly the value of the same will be eroded due to inflation. The Money lying idle in your bank account is an opportunity lost. Because it is not earning you any meaningful return to take care of the inflation. Inflation is nothing but the rate of change of price compared to the previous year. The effect of inflation on money is experienced by all of us.For example what item we can buy with our Rs 100 today, we will not be able to buy the same item next year with same amount of money. You may have to cough out Rs 110 or more. So one should invest to take care of inflation.
To earn better return
One should invest money smartly to get good returns out of it. Many people keep their savings in the bank SB account. This is not all smart. In the banks itself there are various deposit schemes like Fixed deposits, Recurring deposits etc where you can earn much more interest than SB accounts. But there are smarter way of earning higher returns compared to bank fixed deposits also. Investing in debt mutual funds enables you to earn interest @8-10 % or more whereas most of the banks offer 6.5 % return.
To get the benefit of compounding
Another reason for investing is to take the long term benefit of compounding. Long term investments with the compounding effect multiplies your investment many fold. In the process of compounding interest accrued also earns interest along with the principal, making your money grow faster. Compounding interest dictates that even small sums of money can be turned into fortunes over time, provided you select the right investments.
To meet future needs or for retirement
One should invest to take care of future needs or for retirement. If we think of only living in present then we may think that why should we invest and sacrifice our present needs. But you may not be able to earn like today all the time and a time for retirement will come eventually. As you are working, you should be saving money for retirement. Invest your retirement savings into any type of the investments, such as stocks, bonds, mutual funds, real estate, businesses, or precious metals as per your risk aptitude. Then, at retirement age, you can live off funds earned from these investments.
For uncertain future
Another important reason for investing is to make provision for uncertain future. One may have a steady source of income and comfortable life today. But nobody knows what is in store for tomorrow. If for some reason there is a break in the flow of income, one should not become helpless. This is possible if one had saved and made good investments. Also to take care of emergencies like accidents, health issues or some unforeseen natural calamity one should invest.