Saving and Investing seem similar to me. What is the main difference between Saving and Investing? Should I save or Invest? Where should I Invest my money to get the best returns?
Many of us don’t have any idea about Investing. They keep on saving their money in the bank and think that they are investing.
Investing and saving completely different from each other. Everyone is saving their money but comparatively very few of them are really investing their money in good places.
Saving doesn’t require any knowledge, you just open a bank account and start depositing your money in your bank account, that is all that you need to do.
But Investing, on the other hand, requires a bit of knowledge, and you need to have a clear understanding of what are you investing all your money in.
The first thing that separates investing from saving is returns.
Saving you money in the bank account can give you a return up to say 5% maximum. But Investing with very little knowledge can give you returns of more than 25% annually. That’s 5 times more than what you get.
Now many of us know that investing can give good returns but the only thing that is stopping us from investing in the stock market is the risk that is involved in this. This fear of losing money stops many of us from investing.
So, the question is, Can you lose money if you invest in stocks?
The answer is Yes.
This is the main reason people shit towards saving money in a bank account rather than investing because saving money in a bank account can give you save returns.
But we forget something, i.e Inflation. Inflation is a process where the prices of goods and services increase with time, in short, your money in the bank is losing its purchasing power.
Sometimes Inflation rates can reach more than 5% which means that your money is stagnant overall you are making a loss.
The main problem is not the risk that is involved in investing its lack the of knowledge more specifically lack of financial education, we don’t have any financial education neither do most of our parents have which means that we are repeating the same thing again and again.
So now you know that you should invest your money but the next question is where to invest?
For me its the stock market,
The stock market is giving amazing returns over the last few years and as we are in a bull run (Indian economy) its expected that our market is going to touch new heights over the next coming years.
But as I mentioned earlier that investing directly in equity involves high risk and you might end up losing money.
At the same time, everyone cannot focus on investing like reading books, studying companies etc as many of us have a full-time job.
The solution is Mutual Funds.
Mutual funds are funds where many people invest money and then that money is invested in equities, bonds, and other securities. These kinds of funds are managed by a fund manager who is an expert in this field.
Once the lock-in period of that mutual fund gets over the company takes a small cut from the profit and the rest is equally distributed among its investors.
This solves the problem of a new retail investor. You don,t have to think much about your money it is in safe hands.
Now the next question is I don’t have money to invest.
If you don’t have a fixed income then you can’t invest nor save your money in the bank. So, first generate a solid income source which is going to give you a fixed income every month and then think about investing.
Next, you might still think that I don’t have enough money to invest. People think that investing is very expensive and only the rich can afford it, which is not true completely.
Rich can generate monthly income instantly from investing which small retail investor can’t, but this doesn’t mean that you can’t invest. You can go for SIP mutual funds.
SIP(Systematic Investment Plan) mutual funds solve this problem for you. You can start investing with just 500 rupees per month.
Other than this If you invest through SIP mutual fund you will get other advantages too. You will be able to avoid the daily volatility and the market fluctuations.
There is also another type of mutual fund called ELSS. In this, you can save up to 1.5 lakhs from your income tax.
By doing only this much you can get a minimum return of 20% annually from the market.
This was for those people who don’t want to get into the share market directly but want some good returns from it.
Now let’s talk about people who can dedicate time to the market and can research and study about companies
If you are new to the market and you want to make a fortune from the market then the first thing is you need to study a lot.
Go through books that are written by successful investors. Follow daily news and keep your eyes and follow whatever is going all around the world.
The reason you need to keep yourself updated about the world is because you never know some country might change its policy which can affect the companies that are doing business there in a negative and in a positive way.
Some of the books that you should go through are:
You can also follow our blog 2minutesfinance.com.
Successful investors like Warren Buffet invest companies that provide value, this is called value investing.
With just this much you can get returns of more than 30% from the market.