As a child, for the longest time, I actually thought the money plant in my garden will grow cash for me in future. While adulting has rightfully busted that claim, who doesn’t want to see their money grow? The stock markets can be the right embodiment of a money plant if you invest right, make informed decisions, and be wary of the risks associated.
If you are yet to test the waters of the stock market milieu, this article is definitely for you. Read on to find out five top reasons to invest in the stock market.
If inconvenience and lack of knowledge were deterrents for you, the advent of digital platforms made the onboarding process extremely fast and hassle-free. You, as an investor, can complete your KYC and identity authentication within minutes. This can be from the comfort of your homes as opposed to age-old methods of standing in lines with physical copies of share certificates.
Not only convenience, but new-age platforms also provide a wealth of resources that you can use to learn the nuances of investing. With convenience and knowledge at your fingertips, a seemingly tough investment option is now within your grasp.
When it comes to investing and understanding how wealth multiplies, the concept of compounding has a huge role to play. If you let your investments stay for a long time and let the interests compound, you will reap good results and will get one of the best benefits of investing in stocks. This is one of the main reasons why you should consider investing now if you have not done it yet.
Here’s an example to understand the power of compounding:
Investment made in a stock: Rs 100
Interest earned: 10%
Money at the end of year 1: Rs 110
Here you have invested Rs 100 in year 1 and at the rate of 10%, your return on investment is Rs 10 and the final amount is Rs 110.
Scenario 1: You redeem a part of your investment, say Rs 10
Your investment at the end of year 1 was Rs 110. Say you redeem Rs 10. Then the amount you will be investing in year 2 is Rs 100.
Amount invested: Rs 100
Interest from stock: 10%
Money at the end of year 1: 10% of 100= Rs 110
Scenario 2: You do not touch your investment and let the power of compounding do its job
In this case, your interest from last year gets carried forward. Hence the amount invested at the beginning of year 2 is Rs 110.
Amount invested at the beginning of year 2: Rs 110
Interest from stock: 10%
Money at the end of year 2= (10% of 110 )+110 =Rs 121
Hence, if you let the power of compounding work on your investments, your money will grow at a rapid pace.
Many experts believe stock market will help reap benefits if invested for a long-term.
Do not disturb your stock investments during its tenure. Let it stay invested for a long time to get the true value of the stock’s growth story.
Read more: How to Invest in Share Market
Inflation is a definite hurdle when it comes to wealth creation and hence, choosing avenues that beat inflation is the only way to grow rich in the long run. Say an investment gets you 3-4% returns every year but the inflation rate itself is 3.5% or so.
Your Rs 100 investment can get you Rs 104 after returns but due to 3.5% inflation, the value of money reduces and what you can actually afford is just Rs 100.5 approximately.
The inflation rate can even be higher. The returns you earn from your investment will either cancel out or be minimal. Your returns might be Rs 104 in year 2 but because things have gotten expensive due to inflation, what you can actually afford is probably just Rs 100 worth goods.
If your returns are not higher than the inflation rate, effectively your returns from investment become minimal, zero or maybe negative and stock investments can fetch you high returns over a long period.
Stock investment returns can fetch you double-digit inflation returns if done intelligently and help you reach the corpus you desire in a relatively shorter time frame.
If you are wondering why to invest in stock markets at all, the answer is that fixed returns can get boring as there are other places where you can get a better value for your money. Traditional products like fixed deposits or recurring deposits are safe instruments but also give fixed returns for the investment tenure.
While stocks are aligned with the markets and can give you double-digit returns in its good days as well, traditional products will give you a set fixed number on all days.
So dividing a portion of your assets into accelerated wealth-creating instruments like stocks can help you reach your goals faster with the same investment amount.
Bajaj Finance, a non-banking finance company, between December 2009 and December 2019 gave 13,000% returns in its stock. This does not mean all stock investments will turn a lakh-worth of your investments into crores. But it will certainly serve as a great tool to multiply your money to the best extent possible if you keep it for a long period of time.
If you invest in the stock market in India and hold it for longer time, such a function of the stock markets will help you in long term goals like retirement.
Stock market investment can be fun and interesting but all good things come at a price.
The price you have to pay here is just a bit of research into yourself, understand how much risk you can take, what kind of an investor you are, which kind of stocks are available in the market and which suits you more. Invest now and enjoy the benefits of it later!