What is Investing and Purpose of Investing – is investing good for you?

WHAT IS INVESTING

This article is to introduce the concept of investments in India and explain what is investing and various characteristics of investment ,which most of the time, is misinterpreted by the majority of people in the stock market.

After reading this article, hopefully, you will understand What is Investment and Purpose of Investment. A stock market investment is acquiring some assets with the goal to get adequate returns in the future.

Characteristics of investment :

The principal amount should not erode.
Adequate return in the long term.

A stock market investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.” 

― Benjamin Graham, The Intelligent Investor

The Stock market investment is often called gambling rather than investments because 99% of people speculate the stock price without understanding what they are buying.

Safety of Capital

Always take risks that you can easily overcome that too occasionally. If you are a frequent risk-taker in the stock market, it is sure that you will end up eroding your investment capital sooner or later.

But the Stock market investment is a regular process, so the only way to control risk is proper portfolio diversification. Before investing, you should know What is Investment and Purpose of Investing.

Adequate return in long term – purpose of investing

You can expect an adequate return from your stock market investment in the long term only if you know what you are buying, and you are highly convinced about its growth in the future.

Remember, if returns are much higher, we will have a compounding effect in the future. Also, good returns will beat inflation every time.

There are many instruments in which we can Invest

Real estate
Gold
Fixed Deposits and Bank schemes, Post office schemes
Public provident fund (PPF), Senior citizen Savings scheme, etc .
Bond (debt Market)
STOCK MARKET or Equity Market

In the stock market investment, you can create wealth by investing in Stocks or Mutual Funds. When you are investing in stocks or mutual funds, you are buying ownership in business/businesses. Buying a business means you have done a thorough research of the business, and you feel that you are a part of that business.

So serious Stock market investment has the following characteristics:

Through research and deep analysis of the company and business model.
Decisions are not taken based on others’ advisory and market rumors.
Long term view and solid conviction.
The return should be adequate in the long run like 5 – 10 years
Risk is controlled.

Know what kind of investor you are?

There are two types of investors 

Active investors
Passive Investors

Active investors mean those who put a considerable amount of time and effort into knowing about the business and company. Obviously, with proper research, active investors can expect a good return in the form of multi-bagger stocks in their portfolio.

But if you can’t afford it, then better go via selecting the best mutual funds or the index-based investment.

Don’t invest if you are not convinced

In the stock market, it is very common to invest in the market buzz or on some expert recommendations. 

In fact, most people think that they have done proper research by going through the famous investor portfolios and copying them or merely the following expert advice.

It can be very dangerous as when the stock market goes bearish, and you will have no one to advise. Everyone’s risk and return expectations are different. So you better now what is yours and decide as per that.

FAQs

  1. What is capital on a fully-diluted basis?

    A fully-diluted basis indicates the total number of stocks you are leading if all potential sources of conversion are practiced.

  2. What is Equity Shares?

    An equity share describes the sort of ownership. The shareholder is a part of the company and has polling rights.

  3. What is a Debenture?

    It is a bond announced by an organization having a fixed interest rate normally payable at the middle of the year on particular dates and principal amount repayable in a specific time on the improvement of the debentures.

  4. What is a bullish and bearish trend?

    When the market is moving downward, it is called a bearish trend, and When the market is moving upwards, it is called a bullish trend

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