It’s really confusing to decide where you should invest your money! I know we all are scared when it comes to our money and don’t worry, you are not alone. It’s human nature. But have you ever thought of investing your money in Stock Market? If your answer is “No,” then just keep reading. I guarantee you that after completing this article; you are going to search for “How to Buy a Stock?”.
But first, let me bust the myth of you believing in your Banks and Bank FDs. No wonder FDs are safe. But are they profitable? Can they beat Inflation?
Table of Contents :-
The Banks and The Inflation
Are you aware of how much percentage of interest does your bank gives on Fixed Deposit (Parent’s Favourite)? Well, its something around 4% – 5% on a normal Fixed Deposit, and you are happy about it because its safe there. But do you know? Over the decades, your money which is deposited in the bank is going to diminish and at one point you are going to regret the decision. Do you know why it is going to happen? Well, this is where the major devil comes “Inflation“, which is going to eat up all your money. Well, this sounds scary, right?
This is the result of your lack of financial literacy, but there is nothing to worry about. After all, we are here to learn something, so we are on the right path. Once you understand the concept of inflation and how it eats your wealth over time, your whole perspective is going to change for sure. You’ll be more cautious with your money from now. Let’s understand what is inflation –
“Inflation is basically the devaluation of currency”.
To understand in layman’s term the decreasing power of your money to buy something.
Let’s see an example:
Suppose you are in the year 2000, and you have to pay school fees which is “500rs” per month but as the years pass by that fee rose up to “1200rs” month, do you get the basic idea? For the same service in the year 2000, you’d have to pay 500 only, but now you have to pay almost double of it! You see what happens here?
“Price rises with time”, the resources become expensive over the years, and this is what we call “inflation”!
The money remains the same, but the prices rise up. And now you cannot buy the same thing you can afford in the year 2000 with the same money in 2020.
That is the problem we are trying to explain here “Inflation”! In the table given below, you can see the inflation rate, and then you can compare it to the returns your bank is giving you. In case you don’t want to do the maths, “It’s Peanuts” what the bank is giving you.
Inflation rate compared to the previous year:
Does Inflation scare you now?
But don’t worry, we got you! We not only give you problems but also provide the solution to overcome them. Here comes the stock market in play to beat inflation. And also as an investing tool that can benefit you if you use it carefully. And I am telling you again – don’t think of the stock market as a “quick rich scheme” otherwise forget about inflation, you yourself are going to vanish all your money! I am not trying to scare you; I am just giving you real advice.
How does Stock Market help You!
So, let’s understand how you can use the stock market to create wealth that can fulfill your dreams. First, spend some time and educate yourself a little about the basics of the stock market, then you can find a fundamentally strong stock which gives a blast performance over the past few years.
By fundamentally strong, I mean companies with large market capital having consistent growth record of profits, revenue, and sales in the past last 10 years at least. And you can surely use measuring ratios such as P/E Ratio, P/B ratio. Also consider EPS(Earning per share), ROE (Return on Equity), ROI (Return On Investment), CAGR (Compound annual growth rate), etc. parameters that you should check carefully before selecting that bridge stock for your investment.
It can be a little troublesome for you to select those growth or value stocks but remember – nothing comes easy in life. And we are talking about money here, so don’t compromise with research on stocks that you are picking. Otherwise, it can go terrible, and we don’t want this to happen to you.
Stock Market and the Returns
A good stock in average scenarios can give you up to 10% to 12% of growth per annum. If you are more active and watch out for your entry and exit at profits, then this percentage can go to even larger values. 10% to 12% might seem like a small percentage to you. But it can really help you to build your wealth in the long term and also to beat inflation easily.
If you do your research more carefully and be able to find a multi-bagger stock that is undervalued right now. But you see potential in it to grow at a huge rate in coming years, then talk to your trustworthy and certified financial advisor, take the consultation and invest your money in that stock and see it rising and shining.
Pros and Cons of the Stock Market
- But when we talk about stocks, we have to talk about both pros and cons here. Stock market sounds really cool and a good bridge to grow your money, but it comes with its downfalls which are if you are investing in a particular stock, then you must be aware of that company whose stock is in which you have invested because your money growth depends totally on the growth of the company, your money will grow if the company grows and your money will diminish if the company is making a loss.
- So, you need to be updated about the news related to that stock, will have to read financial reports like income statement, cash flow statement, profit and loss statement, etc., quarterly. You will also have to watch your portfolio at regular time intervals to avoid a huge loss. And if you think you have taken a wrong decision, then carefully revise your research, and if you are still in trouble, then you better consult your financial advisor and exit if it’s possible and invest it in some other stock with your proper research.
- One thing that I really want to advise you about is to never invest your money on the basis of tips given by some of your friends or relative.
Always do the research yourself because it’s your money which you are putting. Banks provide you safety but not growth, and In the stock market, growth and safety both are in your hands. If you want to enter the stock market but don’t want to go from the hassle part of it, then you can invest your money in Mutual funds.
Mutual fund is basically a scheme where your money is not spent in one particular stock, but into many quality stocks. The fund is managed by professional money managers, so you can live a tension free life. But you also have to choose a mutual fund according to yourself, because there are different types of mutual funds with different exit load percentage.
So, you better choose what is best for you. After all, it is your money, so it should be your decision. But I highly recommend you to first invest in yourself, learn about the stock market and then buy your FIRST STOCK and start your journey of Investment!
These small steps are what make a huge difference.