We’ve all heard about investment but never taken it seriously. Why investment is important? In this article, we will discuss it. Many people around us are not financially literate, so they never try to do investment. In our teens, we do not get proper guidance for investing, but in this article, you will get a detailed view point on investment and why investment is important for our future life and businesses.
Definition of investment
Investment is a process in which we buy an asset or product with the objective of generating regular income or appreciating its value. The main aim of the purchase is to generate wealth in the long run. We always hope to get a better return in the future on what we buy today. For example, if we buy shares of a company today, we will expect its price to be higher than the current price in the long run and gain some profit in return.
How investment works
An investment is what is done hoping future growth or regular income in future. We can buy shares, bonds, gold, real estate to achieve such objectives. But investment is not limited to these things, in a nutshell anything which can provide you future growth and increase your income is considered as investment.
For example investing in your education and improving your skill is some of great investment options. The education will help you to improve your knowledge and skill that will raise your future income indirectly. So the acquiring new skill and paying for tuition fee is also one type of investment.
But there is always risk associate with every type of investment. For example the company with you you are invested may book loss for a longtime or may go bankrupt. This will either cause depreciation in your capital or you will completely lose it.
Why investment is important
There are certain factor which affect your your money. To preserve your wealth and to generate it you have to do the investment. Below given some point due to which have to do investment for your future.
- Appreciation of wealth
Everyone wants to increase their wealth overtime. Investment is one of the tool which greatly help you to increase your wealth gradually. If you have some long-term financial goal, the also it will help to to achieve your goal. Weather you have goal for your marriage, child’s education or retirement you can go with investment to generate wealth and achieve your goal.
“My wealth has come from a combination of living in America, some lucky genes, and compound interest.”Warren Buffett
The compound effect is one of the effective tool for generating wealth. The best thing in compound interest is that you will not only make money on principle but also on interest. Many famous investor have make their money through this compounding effect.
Inflation is one of the major factor due to which you should invest. Inflation is rising every day that will eat up your money if you not invest it. Investing will nullify the effect of inflation. For example if you do not invest your $100 today, the inflation rate is 10% then the money in your hand after 1 year is $90. But if you invest that money and get 15% return then you will get net 5% profit for one year. So you should invest to beat the inflation.
In 9 to 5 job we get paid for our time, there is no freedom. Another disadvantages with job is that if we don’t work then they will not pay. If you want to earn more then you have to work for more time, But time is limited. You cannot spend time with your family and friends if you work overtime. If you start investing from your early life then you can be financially free in your early life.
Advantages and disadvantages of investing
Below are listed some advantages of investing
The main advantages with investment is your principle amount will grow in long time. You can get dividend as your regular income as well as capital appreciation if you are invested in a stock.
If you want to retire early and want to accumulate a certain amount of money for your retirement, then investment is the best option for you. Doing investment will give you an option to take the advantages of compounding and accumulate you retirement fund.
If you have some financial goals such as your marriage, child’s education or some other financial goal. You can easily achieve these goals with correct financial planning and effective investment technique.
The inflation is one of the big enemy of your money. Investing will give you the chance to beat the inflation. By investing you will stop your money to depreciate due to inflation.
Risk of capital depreciation
There is always risk attached to investment. The higher the risk the higher the return and vice versa. For example you have invested with a company with stocks and the company will go bankrupt then you will either lose your all money or maximum of your capital depreciate.
Why investment is important for economy
The investment is an important part of country’s economy. Investment help to boost the GDP growth. Investment increases the capital stock, and the amount of capital that is accessible to an economy, which is a key factor in determining its productivity. Investment supports economic expansion in this way.
Why investment is important for student
The compounding effect attached to investments heavily depends on the time period; the longer you invest, the better the return will be. Investment in early age will allow anyone to take some more risk. Investments in early life allow the student to take more risk and have a long time to compound the capital. They can retire early and enjoy their life with financial freedom
Although there is financial risk involved with investment, investment is very important for wealth creation and wealth preservation. There are various option available for investment including stocks, bonds, real estate, commodities and digital asset such as cryptocurrency.