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Fight the investing demons with these 5 suggestions

04 Oct 2022 0 COMMENT

Festivals are a celebration of the victory of the good over the evil. As human beings, we have diverse traits with varying magnitudes. Some are good, and some are not so good. The idea is to take inspiration from the festive season and defeat our enemy.

Regarding investments, our behaviour influences our decisions more than we think. The number of myths that exist around investing is a testimony. 

Let's know the five myths and the reality associated with them:

Myth 1: Keeping your money in a savings account is safe

Keeping your money in a savings account may seem safer when stock markets are volatile, or share prices are falling. While the nominal worth of your savings won't suddenly decrease (until you make a withdrawal), inflation can cause you to lose purchasing power over the long term. The inflation demon eats into your money. Your savings need to be invested appropriately to generate a yearly return over and above the inflation rate. 

Myth 2: Saving = Investing

Saving money isn't the same as investing. You may keep cash in hand in a money market, or savings account with a low-interest rate for emergencies. However, investing is using your money to generate potential returns higher than inflation. The danger of investing is real, but so is the risk of not investing. You might not attain your long-term objectives if your money doesn't grow over time.

Myth 3: You can only make money from your salary

If you make money only through salary, you may never become wealthy. Smart people build different streams of income. Other than your salary, you can use your assets to generate income. 

  • Rent - You can get a rental income on the property you have purchased and leased out.
  • Dividends - from mutual funds and stocks.
  • Interest - Fixed deposits from banks, post office programmes, and businesses; bonds issued by companies or financial institutions.
  • A systematic withdrawal plan from a corpus you build over the years or inherit. Here, you may use capital gains.

Myth 4: Investing is for the rich

Many people think that investing is something that only rich people do. However, if you manage a monthly surplus, you can start investing small and grow it into a sizeable corpus for long-term goals like retirement. Your ability to save money helps you to allocate money to appropriate assets. That is just like what rich people would do with their surplus money. While the rich may have more money, you would give a similar direction to your savings with appropriate asset allocation. The more you save and invest, the more you benefit.

Myth 5: More Money = More Wealth

You could be making a respectable income and using it all to fund your luxurious way of living. However, it is also essential to save money and make sensible investments. Earning more and saving and then investing less does not help. If you spend most of your income before allocating money to investments, you will most likely lose your battle against inflation.

Few people get wealthy by merely saving from their salaries alone. If you inherit money or property, you must use it carefully to secure your financial future. If you spend more than you earn, you will be dipping into your assets and eating into your long-term savings.

Takeaway

Myths about money are plenty. Recognise that investment is essential if you want a decent chance of outpacing inflation and reaching several financial objectives. May Goddess Durga's blessings be with you as you embark on your investment path. Invest wisely!

DisclaimerICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.