Express press service
Your money needs directions. This is possible when you learn to invest and not just save. You need to direct your money towards your financial goals. You are happy to sink your savings into gold or real estate.
However, financial assets are barely part of Indian household savings. Even if they are, the money is mostly in a bank or fixed deposits.
When someone says “finance,” many of you tend to cringe. It’s understandable. Financial markets, currency markets, interest rates and inflation are complicated topics that require interest and appreciation. But when it comes to personal finances or your money, you might want to ask yourself if it’s worth holding on to that inertia. You can miss out on the good things in life by not investing because you don’t know.
Inertia is a disease.
There are around 10 crore demat accounts in India, according to the latest data from Sebi. Many people have more than one account. Thus, the number of individual accounts is usually less than the total number. Even then, that’s less than 7% of the country’s total population. Given the rapid spread of financial inclusion, more people are expected to reap the benefits of investing. Yet we are only scratching the surface.
Another amazing fact is that the two cities account for most of the market value of the cash market on exchanges. According to Sebi’s latest monthly bulletin, Mumbai and Ahmedabad are two cities that account for two-thirds of transactions in the National Stock Exchange‘s spot market. This does not only show the skewed distribution of financial services. It also shows the biased nature of investment understanding, appreciation and knowledge.
Saving is not investing
If you manage to create a monthly surplus and put money in a fixed deposit or in gold, you save it and do not invest. You won’t know if you don’t open your mind to financial literacy or knowledge. Nothing happens until something moves, famous scientist Albert Einstein once said. He was also the one who summoned the power to compose the eighth wonder of the world. Your inertia is holding back your financial well-being. You must take steps towards financial knowledge. Learn how to grow your savings with investments. If you save money in gold or bank deposits, you will barely cover inflation. The value of your money will remain the same as it is now, as high inflation will hurt your ability to save more and invest in the future.
Risk perception
Inertia is also due to your perception of risk. Financial assets are associated with multiple risks. These can be both internal and external. You don’t have to delve into finance or economics to understand that consistently high inflation is bad news. To protect your finances against inflation, you need to save and invest more. You need to look for companies that manage their capital efficiently.
For example, a company with little or no debt generates strong cash flow and regularly pays dividends. Most consumer goods companies or technology services companies deal with this on a regular basis. You can imagine the wealth these companies have created over the years as savvy investors have remained invested in them. You need to manage the risk instead of worrying about it and staying away.
For most of you who are not associated with the world of finance, simply investing in an index fund or an exchange-traded fund on a regular basis is the best way to overcome inertia. This way, you only need to know the move in the NSE Nifty or the S&P BSE Sensex. It’s like watching gold prices. The values of these two Indian capital market barometers are readily available online. That doesn’t mean you have to check your performance every day. You can invest regularly and even forget about it. The power of compounding will help you accumulate wealth that will help you beat inflation consistently.
(The author is editor of www.moneyminute.in)
Your money needs directions. This is possible when you learn to invest and not just save. You need to direct your money towards your financial goals. You are happy to sink your savings into gold or real estate. However, financial assets are barely part of Indian household savings. Even if they are, the money is mostly in a bank or fixed deposits. When someone says “finance,” many of you tend to cringe. It’s understandable. Financial markets, currency markets, interest rates and inflation are complicated topics that require interest and appreciation. But when it comes to personal finances or your money, you might want to ask yourself if it’s worth holding on to that inertia. You can miss out on the good things in life by not investing because you don’t know it. Inertia is a disease. There are around 10 crore demat accounts in India, according to the latest data from Sebi. Many people have more than one account. Thus, the number of individual accounts is usually less than the total number. Even then, that’s less than 7% of the country’s total population. Given the rapid spread of financial inclusion, more people are expected to reap the benefits of investing. Yet we are only scratching the surface. Another amazing fact is that the two cities account for most of the market value of the cash market on exchanges. According to Sebi’s latest monthly bulletin, Mumbai and Ahmedabad are two cities that account for two-thirds of transactions in the National Stock Exchange‘s spot market. This does not only show the skewed distribution of financial services. It also shows the biased nature of investment understanding, appreciation and knowledge. Saving money is not investing If you manage to create a monthly surplus and put money in a fixed deposit or in gold, you are saving it and not investing. You won’t know if you don’t open your mind to financial literacy or knowledge. Nothing happens until something moves, famous scientist Albert Einstein once said. He was also the one who summoned the power to compose the eighth wonder of the world. Your inertia is holding back your financial well-being. You must take steps towards financial knowledge. Learn how to grow your savings with investments. If you save money in gold or bank deposits, you will barely cover inflation. The value of your money will remain the same as it is now, as high inflation will hurt your ability to save more and invest in the future. Perception of risk Inertia is also due to your perception of risk. Financial assets are associated with multiple risks. These can be both internal and external. You don’t have to delve into finance or economics to understand that consistently high inflation is bad news. To protect your finances against inflation, you need to save and invest more. You need to look for companies that manage their capital efficiently. For example, a company with little or no debt generates strong cash flow and regularly pays dividends. Most consumer goods companies or technology services companies deal with this on a regular basis. You can imagine the wealth these companies have created over the years as savvy investors have remained invested in them. You need to manage the risk instead of worrying about it and staying away. For most of you who are not associated with the world of finance, simply investing in an index fund or an exchange-traded fund on a regular basis is the best way to overcome inertia. This way, you only need to know the move in the NSE Nifty or the S&P BSE Sensex. It’s like watching gold prices. The values of these two Indian capital market barometers are readily available online. That doesn’t mean you have to check your performance every day. You can invest regularly and even forget about it. The power of compounding will help you accumulate wealth that will help you beat inflation consistently. (The author is editor of www.moneyminute.in)
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