Are you wondering why you should consider investing your money? Here are 10 reasons to describe the Importance of Investing…
We at Bachat emphasize a lot about investing – why to invest, where to invest, when to invest etc.
Well, today I will be presenting a brief summary of the overall significance of investing.
Investing is an important activity in one’s financial life. Without investing, it becomes difficult to grow your ‘salary’ into ‘wealth’.
Let me elaborate on this.
If you do not invest (why though?), you’ll just get hold of your salary every month. Nothing extraordinary.
However, if you indulge in investing, you have a chance to multiply your salary. And this multiplication of salary is what will constitute your wealth.
- 1 So, let’s start with the basic question: Why should you invest?
- 2 How do you invest?
- 3 1. Educate Yourself
- 4 2. Identify the trendline
- 5 3.Support and Resistance Levels
- 6 4. Historic Trading Volumes
- 7 5. Avoid a Financial Planner
- 8 6. Do not Imitate the Expert Investors like Warren Buffett
- 9 7. Make your Investment Goal to Save for your Retirement Fund
- 10 8. Build a Diversified Portfolio
- 11 9. Beware of your Monkey Mind
- 12 10. Learn how the economy works
So, let’s start with the basic question: Why should you invest?
Growing up, I assume we all have wondered at least once in our life about how finances work. About what to do with the money once we start earning. About where to keep the money.
Well, one thing was certain – the answer wasn’t ‘buy whatever you want’.
Obviously, buying whatever you want can be real fun, but isn’t fun when you don’t have retirement funds.
There are people who then later regret the financial mistakes they made by splurging on expensive things instead of saving.
But the problem is that they can’t go back now. This leads to regret.
Do you know where this regret springs up from?
Society’s ‘life for today’s maxim.
I know, I know living in the present is important. Regretting about the past or worrying about the future takes away your present as well.
But, this does principle does not apply to finances.
While handling your finances, you must learn from your past mistakes and worry and save for your future.
Therefore, when talking about finances, ‘live for today’ is nothing less than a trap.
So, don’t spend all your money today. Let it grow. Invest it.
Replace the urge of spending with the urge for saving.
This is precisely the reason why you should invest.
This way you’ll have a huge corpus of money saved by the time you retire.
How do you invest?
So, how do you begin investing? What to do if you wish to begin investing?
1. Educate Yourself
First and foremost, educate yourself. Learn the basic concepts of finance in general and stock markets and investing in particular.
For learning the basic concepts of finance, Bachat is a great place to begin!
For learning the basic concepts of the stock market, start here:
Before you go shopping in the stock market, it is essential you first understand the logic behind some of the everyday terms in the Indian stock market.
Deciding which security to invest in, when to buy it and when to sell it can prove to be very difficult, especially for beginners.
But if one has the knowledge of technical and statistical analysis, the whole investing procedure will seem like a breeze.
2. Identify the trendline
Trendlines are those lines which are used to depict the rise or fall in stock prices on a graph. They signify what is known as the price pattern.
Identifying a pattern or trendline is the first task you must learn.
3.Support and Resistance Levels
Support level implies the bottom boundary whereas resistance level implies the top boundary.
These two levels simply suggest that a stock’s price is not likely to fall below its support level and likewise, it’s not likely to rise beyond its resistance level.
When the price of a security reaches its support level (i.e. predicted bottom-most level), it is believed that the market is currently bearish in nature. Hence, it is considered an ideal time to buy that security.
Similarly, when the price of a security reaches its resistance level (i.e. predicted top-most level), it is believed that the market is currently bullish in nature. Hence, it is considered an ideal time to sell that security.
4. Historic Trading Volumes
Volume means the number of transactions in particular security which, taken place at a particular point of time, irrespective of buying or selling transactions.
At the base of the X-Axis (i.e. the horizontal axis) of the graph, you can see some little, vertical lines. These depict the volume of that particular security at a particular point in time.
The volume usually increases dramatically when there is significant news (positive or negative) about the organization.
At a point when the volume is expanding, it can likewise move the price of the stock rapidly.
With high volumes persisting in the market, you can be witness greater ease in buying and selling stocks. This is because if a lot of people are trading that day, you will find a buyer/seller quite quickly.
To know more, read Technical Chart Analysis of Indian Stocks.
5. Avoid a Financial Planner
Hiring a financial planner is very similar to hiring a personal gym trainer. The planner/trainer will guide you in the right direction.
But remember, that not every fit person has a personal gym trainer. Guidance from a professional can be helpful, but you can get there on your own as well.
Also, not having a financial planner is wayyy better than having a bad financial planner.
Finance planners usually have commissions set in certain investment avenues. Therefore, they are likely to guide you into investing in those avenues only irrespective of their payback values.
Hence, if you are too keen on getting a finance planner, hire one on a fixed salary basis instead of a commission basis.
But, I would advise against getting a financial planner and instead suggest handling one’s finances on one’s own.
To know more read How You Can Create A Financial Plan Without An Expert’s Advice.
6. Do not Imitate the Expert Investors like Warren Buffett
Warren Buffett, the third wealthiest person on the planet as of today is considered the most successful investor in the world.
However, while investing worked for Buffett, it doesn’t mean it will work for you as well. That is, imitating Warren Buffett is not the key to riches.
Simply because Buffett has had many factors contributing to his success.
7. Make your Investment Goal to Save for your Retirement Fund
Invest with an aim to save for retirement.
Only if you will start saving today will you be able to grow a huge and satisfying retirement fund.
Retirement might be a long time off, but it’s still crucial that you consider whether you’re saving enough to retire when you desire.
In order to maintain your current living standard and live a comfortable life, you must start planning for your retirement fund NOW.
To know more abpout retirement funds, read How to Build a Retirement Fund?
8. Build a Diversified Portfolio
The mantra for investing is: diversify, diversify and diversify.
Many individuals think of investing all their money into a seemingly lucrative option. A single option. If by God’s grace, that stock goes up, they’ll be rich. But God forbid that stock goes down, I can’t even begin to imagine the extent of their loss financially and mentally.
Rather than picking a single stock option, invest in a multitude of options. It doesn’t matter how less you invest as long as you have a diversified portfolio.
This way, if one stock is doing poorly, at least two other stocks are performing well thereby balancing out your risk.
This goes well with the saying, “Don’t put all your eggs in one basket”. If you have a portfolio that consists of a wide range of securities, it will work as a shield against huge losses for you.
9. Beware of your Monkey Mind
Let me tell you a little secret: Ignore your monkey mind, which is the emotional and irrational side of your brain while investing.
Do you know why people resort to financial advisors?
Because they can’t control their monkey mind. They seem to flow with emotions. They don’t have a disciplined approach to investing.
Remember, emotions are your portfolio’s worst enemy.
So, what to do while investing?
Basically, there are two types of people in the world: smart people and wise people.
Both of them become successful by learning through mistakes.
But, smart people learn from their own mistakes whereas wise people learn from others’ mistakes.
Therefore, what to do while investing is to become one of the ‘wise’ people.
To know more read How to Ignore your Monkey Mind while Investing For Growth?
10. Learn how the economy works
Understanding economy is as essential as understanding how your personal finance works.
It is important to study the past, present and future of the economy.
It is commonly said that if you know about the past, you are better prepared for the future.
Studying the economy will equip you with a fair ability to judge what is happening in the economy now, what is likely to happen in the future and most importantly, how you should act in these situations.
To learn about the economy, read What is the economy and How does it work?
I hope you found this article informational!