What else can be a better reason for a logical mind to invest especially when it comes from a stalwart like Warren Buffet whose only business is to invest and the result is he is the 2nd wealthiest person in the world.
This is to give an idea of where can a successful investor reach in life.
But let's keep aside the big story and concentrate on why even in our daily life we need to save and invest?
I would like to mention here that Saving is different from Investing.
Saving is done with a short period in mind for attending short term cashflow requirements and hence return is more or less in line with inflation.
Investing is with a longer time horizon to achieve bigger financial goals with a focus to beat inflation and create wealth.
Friends first let me take you to the 3 basic factors required for saving and investing.
1] Money
2] Instrument to invest
3] Time to stay invested.
Now comes the most interesting aspect of investing phenomena.
1] Money - can be unlimited, depends on how much you earn and also can be recurringly earned- Infinite
2] Instrument to invest - are always available in plenty and can be manufactured in plenty in the days to come by financial institutions - Infinite
3] Time to stay invested - Cannot be manufactured as everyone has limited time and by the passing of each day , one is lesser by one day to invest.- Finite
So there are 2 infinite factors and one finite factor.
Now, what is more important?
Obviously, finite factor is most important as it is limited.
The most important point is not to allow time to pass by without using it to invest.
Now you may say that unless money is there to invest what use is the time?
So we are talking about only those who are already earning money.
Now even after earning money people neglect to invest and allow the money to lie in savings bank accounts or in bank Fixed Deposits?
So friends Investment is a financial sport and in every sport, there are following
points which we need to take note of
1] Rules of the game
2] Challenges of the game
3] Right technique and Right temperament.
4] A coach
A good coach takes care of the first three and also gives the necessary handholding.
A person who wants to get into the game without the coach has to manage the first three himself.
e,g lets talk about cricket
Rules of the game are known beforehand but the challenges keep changing
in every match, so you need a coach to constantly guide you on the technique, temperament, and also physical fitness.
The work of the coach is before the match, during the match, and also after the match for the next match.
The coach can guide better because he observes the entire game and is an intense observer during the match and is doing nothing else than observing.
The point I am trying to make here is if you are playing the Investment Sport then
it's better you have a proper qualified Financial Advisor as a coach.
Now coming to challenge?
The biggest challenge in Investment Sport is INFLATION
Inflation is the rise in the prices of goods and services.
e.g the rate of inflation is 6 % p.a.
Now, what does it mean?
It means that the goods costing rs 100 today will cost 106 Rs 1 year later.
This means that 100 Rs you have today should become a minimum of 106 rs after 1 year to purchase the same goods.
Now by remaining in savings bank it becomes 103.50
This means the wealth has depleted by Rs (106-103.50 )=2.50 Rs
This is the cost of not investing.
on 1 lac rs, it becomes rs 2500/-
The same money can be invested in a liquid fund which will at least earn the inflation return.
The effect is much larger in a 20 year period.
So the Insight is
1] Do not allow money to lie idle in the Savings bank account.
Always invest in the liquid fund for a short term requirement
2] Always have a coach.
I hope you enjoyed this article, would request your feedback.
I shall share more insights in my further articles on Investment Insights.
Vivek Mulay
AUM Financial Consultants
vivekmulay@gmail.com
M-9822107757
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