As a medico turned investor, I had no former background in finance. Also, I rarely used the word 'investment' in my communication.
From there to being an avid investor with a well-diversified portfolio, I learned a lot of things. These learnings would go a long way in guiding other newbies into this investing world.
Here, we would be referring to investing in the Stock Market only.
Otherwise, there are a lot of other avenues for investing, like real estate, cryptocurrencies and tokens, NFTs, and Land in the Metaverse (I like to call it virtual estate, lol).
Why invest? Why bother?
One of the first things that bothered me was the curse of inflation. To simplify, governments worldwide keep printing money to set off debt. So, upon a bit of pondering, it becomes clear that the cash decreases in worth. It can progressively buy lesser and lesser items.
This means that all the hard work we put in to earn money and someday retire would be of lesser value than it is today.
What, we work hard to grow poorer by the day?
Sadly yes.
What about the supposedly "safe" bank deposits?
In 2022, the rate of inflation worldwide was about 8.4%, and in India it was 6.7%. This is the rate at which commodities get costlier.
This is much higher than any "safe" bank deposit's interest return. So even bank deposit returns make you poorer every year.
(Ask the banks where they invest, lol?)
Then, what?
Enter the stock market. In short, the stock market offers a lot of (risk, reward) combos. The greater the risk, the greater the prize, as many know.
However, even the least risky stocks and funds give a return that beats inflation.
I am referring to index funds, like the S&P 500 and the NIFTY 50.
The index funds invest in the market's top performers and hence rise and fall with the market. The average return on index funds is about 12 to 16 %. That does it.
Index funds form the best investment for newcomers to the stock market, with significant returns, no monitoring required, and the least risk.
I will explain more about the index funds in another article. I will also be sure to talk about ways to invest.
A few points to be kept in mind:
- One must do their own research before investing.
- One must refrain from investing emotionally.
- It is essential for your personal finance to first form an emergency fund and other kinds of emergency backup before entering the market. I will dedicate a separate article to this.
Great job reading till here. I hope you liked my article.
Please follow me to read further about my investing journey.
See you around!