The world of money has seen some bizarre times over the past few years. It all started in 2006, when housing bubble in the US burst. This in turn led to the credit crisis, which was of an unprecedented scale. Then, followed the series of bailout programs in the countries across the globe and after some time equilibrium returned; to some extent; taking markets up again.
However, during the crisis, borrowers defaulted on their loans; banks started going bankrupt. Many corporate and retail investors, mainly global, who had invested in mortgage-backed securities, lost their money; they too went bankrupt. This cascaded into a full blown global crisis. Fortunately, some countries like India got away with mere ripple effects.Nevertheless, these ripple effects were enough to serve as sharp reminders of the times we live in. We were just loving our lifestyles, that of rising incomes, easy credit and high luxury. Then, came the scare of Job loss, rising prices and piling debts. But, it didn’t have to be that way.
With a little bit of smart planning and investing, you can cushion, if not ward off, any crisis.
The key is Planning AND Investing. And by investing, I didn’t mean to just park your money in the bank every few months. A good investment system needs both, time to plan and money to invest.
Today, every sector has an ocean of job opportunities to offer. Unlike in a cushy government job, where one gets the benefit of pension that has a DA built in (which grows with Inflation), most people work in private sector, without any guaranteed job security. Thus, the only way to secure old age & meet any unexpected or unfortunate events is to invest now. Investment addresses the acute concern of the “Sandwich” generation who look after their aged parents and take care of their children’s needs today, but can’t depend upon their children to look after them in their old age. The Chief principle of Investment is all about making your hard earned money earn more money for you! Simply put, IT IS THE PRACTICE OF MAKING YOUR MONEY WORK FOR YOU, WHILE YOU WORK FOR MORE MONEY.
One look at your bank statement will show you the credits into your account coming from all sources of your income & then, have a look at where your hard earned money vanishes like Expenses (Essentials & Non-Essentials), Taxes, Investments (Mostly unfortunately they come last in priority).
If you wait until all your expenses are met before turning to investment? Then, Robert Kiyosaki’s wise & friendly advice in his bestseller “Rich Dad Poor Dad” is just the thing for you. According to Kiyosaki, the secret to getting rich is to “pay yourself first”, that is to invest for your future, before you pay others (Expenses).
Convinced that investment is a step in the right direction for making your finances grow, here comes the even bigger question: “Where to Invest ?”
Today, there are so many investment avenues such as stocks, Mutual funds, Post office schemes, bank FDs, commodities, gold real estate etc., that a regular person might get scared by the gamut of these itself. But, there’s no need to go tizzy about it because there’s plenty of help at hand in today’s time of Internet. One can find different investment opportunities and advice of various experts & Fund Managers online, all you just got to do is click.
If your usual investment strategy is to dash off to the local bank and put your money into a Fixed Deposit(FD), then it’s time to re-think. There’s nothing wrong with FDs. They are time tested, safe and in the current scenario; also attractive. However, if you aim to create wealth to achieve short-term and long term goals, FDs lag sadly behind other forms of investment. Although banks may appear to offer attractive interest rates on FDs, the fact is that they often fail to keep up with inflation. And other important & major concern is Inflation. For those who don’t know, inflation is the rate at which the cost of goods and services rises. Simply put, as inflation goes up, your purchasing power decreases. It is much like what happened in the real estate sector. As property prices & interest rates on loan increase, buyers are forced to consider smaller houses in far flung localities. Few years ago, you could have bought a 2BHK apartment in premium suburb of Mumbai for Rs.75 Lakhs ; today, the same amount will probably get you 1BHK. Thus, your purchasing power has reduced. That’s exactly what inflation does to your savings over time – it reduces the value of your money.
So, can you beat inflation? Certainly Yes. But putting your money in a FD is not the way to go about it. To fight inflation, the key is to invest in a product which gives you higher Rate of Interest than Inflation, and ultimately leaves you with surplus to meet your goals.
One of such investment avenues is Stocks & Mutual funds. In the past year, stocks and mutual funds have given huge returns and some of them even doubled. But generally, stocks and mutual funds are seen risky options. No doubt, they are risky but there are techniques to minimize the risk and you can’t deny the return they offer.Stock markets and mutual funds have gained pace after the formation of new government in country. And as stock prices have increased rapidly they are bound to come down & starting of 2015 is thought to have correction in markets and it will be right time to invest. Markets don’t always go up, it will go down, but you have to be Patient and stay Invested but don’t be over patient.
Do have keen and regular watch & have track of your portfolio. Its quintessential to do so because it will help you to know how markets move & when to exit or enter into an investment. But, investment in stock market is not a Magical wand which will double or triple your money in no time, you have to stay invested for a LONG TERM.
If you are afraid of stocks’ volatility, you can go for Mutual funds where Expert Fund Managers professionally manage your funds. However here also, you can’t just invest & go, you’ll have to track your investments.
But before you actually try them out, do a detailed analysis of your funds, goals & investment avenues or have an expert opinion.
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CA - IPCC Student
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