This 2020 Coronavirus pandemic crisis has brought a drastic change in the Indian investment prospects when investors started to rethink on achieving their time-bound goals. No one knows about the timeline of this abruptly changing scenario, especially with respect to the future of one’s investment portfolio.
The market has fallen down but this is the time, as the experts are saying, “It is a great time to accumulate at a lower rate and maybe, you can never ever have such opportunity in your lifetime, that covid-19 has offered. Hence, irrespective of the amount, investing now, is going to benefit you in the long run.”
Saving v/s investing
In an interview, Warren Buffett once said that he started saving since he was only 13 years old and he repents for not starting earlier than that. But there is a huge difference between saving money and investing money. Investing means you can lose your earning, when saving is a secure aspect. Definitely, I am not indulging you not to invest. But one should know the basics before starting.
Remember; investments are those savings which you do enjoy a rewarding financial future. When you are trying hard to make money, your money should also put effort to pay you back handsomely. This is what investment is about. Investments would add to your saved up money via capital market instruments. As the master said, “Do not save what is left after spending; instead spend what is left after saving.”
We asked Santanu Biswas, a Financial Coach of a renowned SEBI registered investment advisory company, how do you guide people for saving or investing?
As Biswas explained, “There are two important things that people need to keep in mind before they start investing/saving.
One, the main objective of investing/saving is to replace their future income (become self-reliant) and meet large future expenses comfortably without getting much into debt.
Two, have a plan before making an investment. Decide on the destination where you want to reach (future large expenses, post retirement regular expenses etc.) and based on the destination choose the right investment.”
Power of compounding
If Rs 5,000 being invested monthly for a period of 30 years, your investment of 18 lakhs would grow up to 3.5 crore, assuming the rate of return @ 15% per annum. This is what is called the magic of compound interest and the benefits of investing early.
Now, let’s talk on the topic we started with, basic differences between saving money and investing money.
- Saving is just about keeping some of your money aside, that is left after meeting your needs (now, mind the language. What you ‘need’ and what you ‘want’ are never the same. For example, garments can be your need but brands are what you want). Investment in other words can be said as a productive savings. Money that you put on funds will generate money, which is an investment.
- We save money to meet our uncertain or emergency expenses. But we invest money to get a return over a certain period that will increase our capital and create wealth.
- Saving can be defined as short term but investment is a value for long term.
- In terms of liquidity, savings are highly liquid. You can have anytime access to your funds. Whereas, investments are not. Moreover, if you are thinking not to hold your fund for at least 10 years, then it’s better not to hold the fund for the next 10 minutes. As it is said that the best holding period can be forever!
- Considering the risk factors, there is ‘almost very little’ probability of losing your savings. But yes, if you invest it in wrong instruments then you can lose your hard earned money. Then why take the risk of investing? Remember; no risk, no gain! If you are ready to take risks for a longer period, profit is yours. Regarding investments, “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years”.
- While you save, money can only be generated by the income from interest credited which is usually less than 5% per annum.
- Only savings cannot generate wealth. Proper channelization of your earning is important for generating the same. This channelization can be done through several ways of investment. As early as you start investing, your savings will be mobilized to help you earn more.
Being future ready
It is more like driving a car. You cannot just accelerate and reach the destination. You have to assess the roads, traffic, distance and everything. Balanced use of brake, accelerator and clutch will lead you to achieve your destined goal. Like that, maintaining the right balance between savings and investments is important in building a healthy and relieved financial future. Because it will benefit you in managing ad hoc emergencies like physical break down, unemployment or abrupt inflation, as well as help in achieving your goals like buying a house, car, children’s future, peaceful retirement etc.
So, keeping the overall downfall in mind, before you choose to save or invest, always keep your purposes clear in your mind. If ever in doubt, consult SEBI registered financial advisors for professional help.