Learning about investing will only help you in the long run !!

If you learn to swim and drive, you will never forget. When you swim or drive, your body responds to do the right thing. The world of investments is complex, and no single technique is the right way. However, learning to invest will help you in times of your needs, like swimming and driving.

You may not become an expert. You may not understand when is the right time to buy or sell your investment. However, learning about investing will only help you in the long run. A passive investment approach over 20 years of work could turn transformational.

Investing for wealth
There is a difference between saving and investing. You know that you have to save your income for a rainy day. That is well understood in every Indian household. So, you keep cash or buy gold or property. The idea is that your savings would help you in the time of your need. They will allow you to achieve life goals that need a high expenditure. While these tangible assets are easy to understand and evaluate, you are missing something important.

biggest enemy of your wealth is inflation. It eats into the value of your savings like a parasite. It grows with money and also eats into the value. Investment helps you beat inflation each year.  The effect of wealth creation is not overnight; you need discipline and patience to achieve the objective. Regular investment in an index fund or an exchange-traded fund that tracks the performance of the BSE Sensex and Nifty can help you create wealth over 15-20 years. That is called index investing. Just like you would set aside a portion of your monthly surplus for the future and buy gold or a fixed deposit, you may want to look at index investing. 

Even if you do index investing regularly, it will help you beat inflation and create wealth over the long term. It has happened in America before in the 80s and 90s, and there is no reason why Indian households cannot benefit from the rising values of the BSE Sensex and Nifty. Stock markets directly touch less than 2% of India’s population. Mutual funds barely have 3.77 crore unique investors as of March 2023. That is under 3% of the population. A handful are benefiting from the stock market surge.

India’s growth prospects are much better than most countries in the world. Average growth of 5-7% in the gross domestic product means companies can grow profits at twice the rate. That is a thumb rule in the stock market. Share prices usually trend in line with profits. If listed companies in the stock market keep growing profits yearly, share prices also grow. You just need to learn about that aspect and invest regularly.

Risks in investing
Just like reckless driving and swimming can cause harm to you, reckless investing can hurt you too. Investing without adequate knowledge or rumours is a bad idea. You must know where you are putting your hard-earned money. If you do not understand that, you need not invest. To understand that, you need to know a few basics to mitigate risks. You need to read up on the broader trend in the economy and the outlook for inflation and growth.

That is no rocket science. The Reserve Bank of India regularly publishes a state of the economy report in the monthly bulletin. You just need to read the outlook. Risks to your stock market investing are from high inflation and interest rates. If RBI puts out a hawkish note suggesting a hardening of interest rates, that is no good news for corporate profits.

On the other hand, if the RBI suggests a soft interest rate regime going forward, you could see stock market gains. Investing is an essential skill to learn. You may not commit everything to it. However, small steps through regular monthly investing can be your first steps. It will be a slow and steady march towards financial security.

Investment helps beat inflation
The biggest enemy of your wealth is inflation. Investment helps you beat inflation each year.  The effect of wealth creation is not overnight; you need discipline and patience to achieve the objective.