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Top 10 best reasons why investing money is important

Why investing

Why invest? why investing is important? is saving not enough?

If these are all your questions feel free to read this blog.

Maybe you think of investing money but have not started yet.

The very reason to not invest money is that people don’t consider investing money is important.

But it is. More than you might think.

Before you dive into the Top 10 best reasons why investing money is important, let’s look at what’s the difference between saving and investing.

Savings as you might know saving some of your money from your income for future use. It’s a basic habit that most people have.

On the other hand, Investing is about getting money to work for you.

You invest in assets that can grow over time (like stocks and bonds) and generate income through the appreciation of assets.

Here are the 10 best reasons why investing money is important:

1. You’ll don’t lose money

When you save money, you lose the value of money over time.

It’s because of inflation. inflation reduces you currency power of purchasing goods and services.

The last 10-year average inflation rate of India is 5.97 as per Trading Economics.

As per this inflation rate, your money would be half in just 8 years.

If you don’t want to reduce your value of money, invest it.

Invest in something that can give you more return than the inflation rate. You can invest in stocks, bonds, real estate, crypto, etc…

Through investing you don’t just protect your money from reducing its value but you also grow your money along the way.

2. Financial independence

Financial independence is when you don’t have to think about money, you have enough money to live on, and you’re not dependent on someone.

Everyone should have this goal in their goal list, that is ‘at some point in time I don’t have to think about money.

You can’t work your whole life earning money. That’s why investing is important for all of us.

As you work, invest some percentage of your income thereby your money also work for you.

The most important thing that financial independence does for you is to get free time.

The best way to achieve financial independence is to create passive income sources.

And most of the passive income comes through investing. That’s why investing money is important.

3. Build your wealth

Financial Independence

You should keep in mind investing as a tool for building wealth.

People save and invest with the view of building wealth.

They save and invest money over a long period.

Earned interest or dividends income, they reinvest to the same investment instrument.

This way most people build wealth and you can too.

4. Become part of 3%

In India, only 3% of the population invests in the stock market.

In comparison to the US which is 55%, India has a lot fewer people invested in the stock market.

There are reasons why most people in India don’t invest in the stock market.

Such reasons are:

  • Lack of financial literacy
  • Low-risk attitude
  • lack of money

These 3 are the major ones why most people don’t invest in the stock market. Thereby they also lose the chance of building their wealth.

Be financial literate. Take some calculated risk. Make an investment plan. Increase your skills to increase your income. And start investing as early as you can.

5. The power of compounding

“Compound interest is the eighth wonder of the world. He who understands it earns it- he who doesn’t- pays it.” – Albert Einstein

According to Albert Einstein, compound interest is the eighth wonder of the world.

Its simple math taught in school is so powerful.

As you might know, interest is what you get in your initial investment. Compound interest about getting interest on interest.

for example, if you invested Rs 10,000 in a bank FD. Bank interest rate is 10%.

At simple interest in one year, your Rs 10,000 investment will be Rs 11,000. In 2 years it would be 12,000, in 3 years Rs 13,000 and so on.

However in compound interest, in 2 years it would be Rs 12,100, in 3 years Rs 13,310, in 4 years Rs 14,641.

According to The Economic Times, Sensex has grown at a CAGR of 14.06% over the past 20 years.

If you could just invest Rs 1000 monthly in Sensex for 30 years your money would be Rs 4,332,392.

And if you keep invested for 40 years then it would be Rs 1,62,93,184.70

compound interest example

In thirty years it grows to Rs 43,32,392. But meanwhile, from year 30 it grows exponentially (as you can see in the chart).

This is the power of compounding. It works with time. It tends to be beneficial for the long-term investor.

That’s why investing money for the longer term shows you the power of compounding.

6. You’ll build discipline

For all your Investing processes you need to be disciplined.

As you invest every month sum of your income, you’ll build discipline. The discipline of saving every month.

The discipline of investing every month. and Discipline of learning as your interest grows.

You have to become a disciplined long-term investor for building wealth.

When you enter a market, there were so much volatility you face through your investing journey.

and how you react to it determine what your discipline for long-term investing is.

7. Money can work harder than you (really)

Your money can work harder than you if you put it in a right place.

How can money work hard than me?

Suppose you earn Rs 1 lakh per month, annual is Rs 12 lakh. You’re not spending any money and just saving money till 30 years ( just think). After 30 years you have Rs 3 crore 60 lakh.

How much time do you think it would take to Rs 100 crore?. A lot.

Now think, somehow you have Rs 1 crore, and you invested it in a good company by buying its stocks.

If you can grow your money at the rate of 16.6 percent then it would take 30 years to Rs 100 crore.

See on the first example if you save all of your income till 30 years then also it can’t become 100 fold.

Hence, your money can work hard than you.

That’s why investing along while you earn is important.

The more your return, the earlier you can make your investment 100 fold. See below.

make your money work hard than you

And if you want to 100 fold your money in just 10 years then you need 50% of return every year.

If you have an interest in choosing multibagger stocks highly suggest you read 100 to 1 in the stock market by Thomas Phelps and one up on wall street by peter lynch.

Both books will teach you how to find out multibagger stocks.

8. Build a new skill

The major reason only 3% of the population invest in the stock market is because they lack the skill of financial literacy.

Don’t be one of them. Learn investing as early as you can.

it help you a lot in the future.

According to financial express, in India, only 27% of the population is financially literate.

If you want to succussed in investing, you have to keep learning.What Are Bull And Bear Markets And How should you invest in one? (2022)

9. Additional income source

additional income source

Researchers have even pinpointed a statistic: millionaires, on average, have not just one, but seven streams of income (source: passiveincomemd).

The seven income streams of most millionaires are:

  1. Earned income
  2. Interest income
  3. Dividend income
  4. Rental income
  5. Capital gains
  6. Royalty income
  7. Profit income

Except for earned income and royalty income, all income sources come from investing.

Whether it is Interest income that comes from bonds or FD, dividend income that comes from stocks, capital gains that come from appreciating stocks, real estate, crypto prices, or profit income that come from buying low and selling high.

They’re all part of investing.

That’s why investing money and through that creating income sources is important for your financial future.

10. Grow Economy

Perhaps it is not beneficial for you, but you indirectly help grow your country’s economy through investing your money.

An economy only works if money is in constant movement and exchange.

If everyone stored cash under their mattress, there would be less circulation and the flow of money would decrease.

It also tends government to print more money in recession to kick start the money flow.

It increases inflation thereby prices of the same goods and services would increase.

For an economy to grow, money needs to flow.

When you save, your money is only limited to you. However, when you invest, your money is in constant movement and exchange.

That is why investing is better than saving for a growing economy and you either.

5 tips on investing

In addition to ensuring that you understand why investing is important, here are 5 tips on investing that help you in your investment journey.

Start Early

Start as early as you can.

The longer you wait the fewer benefits you’ll get overtime. And you lose the opportunity to build wealth.

The effect of compounding works wonders when you start earlier.

When you start investing matters more than how much you invest.

Keep emergency funds

It’s better to keep emergency funds rather than sell your investment.

Save at least 6 months of your expenses in your saving accounts. So at a hard time, you have money to keep going on without the risk of selling investments.

Know your risk appetite

Knowing your risk appetite before investing help you to choose assets or investment that best suits you.

You must check whether you’re a conservative investor (low risk), moderate investor (medium risk), or aggressive investor (high risk).

Invest in what you know

If you understand the stock market than real estate, go for the stocks.

If you’re familiar with finance and technology, invest in those sectors, rather than investing in the pharma sector where you don’t understand their business well.

The motive is to Invest in what you know.

Diversify investment

Diversification is key to your investment. it helps you to reduce your risk.

When you invest in only one asset, you’re limited to that asset.

But when you diversify with a bunch of assets, your risk will vary, if one asset is in loss then you’re another asset might in profit, so overall it balances your portfolio.

Final thoughts

Now you know the reasons why investing money is important. Also, you looked at some tips to start your investing journey.

From now, don’t look for why investing money is important, just start investing.

We ensure that investing comes with its risk.

To learn more about investing read blogs (just like you’re doing now), read books about investing, and apply for courses.

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