In this 21st century everyone wants to be rich and successful. Now, there may be some arguing that, these are materialistic things and would never bring peace and happiness. But thinking practically, being rich makes oneself happy to some extent. Firstly, the person can buy things whatever they wish to buy, which may give them personal satisfaction. Being rich, one is assured of security. And yes, they can contribute and share their wealth with those in the need of. Thus possessing wealth is no evil. The main problem in today’s generation is how to generate wealth?
In Indian schools, we are taught subjects like languages, maths, sciences etc. but are not taught about finance. This is major cause of poverty, as the people are not aware on how to manage their finance. Mostly if they are aware, they would simple deposit in banks at meagre interest rates. What they don’t understand is the concept of inflation. The inflation rates are mostly greater than the savings bank account rate. Thus, causing degradation of value of money. So here comes in the concept “Compounding”. Compounding is considered as the eighth wonder of the world. To quote Warren Buffett,
“Do not save what is left after spending; instead spend what is left after saving.”
What is Compounding?
Describing simply, compounding is the reinvesting of the interest earned on one’s investment, increasing the principal amount over time. This increases one’s earnings in an exponential manner, which is a marvellous way of increasing one’s wealth, but it requires time. Understanding power of compounding can create wonders in one’s life. But the nest question arises, where to invest our money in order to ensure a secure interest rate. There are various options available like Banks, Gold, Stocks etc. But each of these option has its pros and cons, like if one assures heavy rate of return than it accompanies a higher risk factor and vice versa. Gold is considered the safest investment option. But Stocks is some miracle.
What is Stock Market?
In the words of Warren Buffett, most successful investor,” The stock market is a device for transferring money from the impatient to the patient”. In layman’s terms, it refers to public markets for issuing, buying and selling stocks that are traded on a stock exchange. Stock, also called equities, provide in a sense fractional ownership in a company, and the stock market is a place where investors can buy and sell ownership of such valuable, investible assets. An efficient functioning of stock market is essential and critical for economic development of a country, as it directly provides opportunities to companies to access capital from public.
Thus stocks benefit both, the companies and the investors. The companies can use the investment to fund and expand their businesses. The investors, those who purchase the company’s stocks, enjoy the opportunity to share the profits of the company.
Should one invest in stocks?
Despite of its attractive returns, one should not neglect the risk associated with stocks. As the investor is liable to their share of company’s profit, likewise, they are liable incur the company’s losses. So many people consider Stock investing as gambling. But seeking the advice of the successful investors, it is not true. With right planning and knowledge one can assure their profits. This is called Portfolio Management, which is another topic in its sense. One key for successful profits is diversification. One can predict, learn and observe the statistics of a company and likewise devise a strategy.
Thus, talking about the title, one might have collected necessary opinion. Minimizing downside risk while maximizing the upside is a powerful concept and spend each day trying to be a little wiser than one was when they woke up. At last, the key element to success in investing is “Time”.
Lastly I would like to quote Ben Graham,
"The individual investor should act consistently as an investor and not as a speculator."