To most beginners both salaried professionals and businessmen, Investing can seem complex, with a maze of terms that leave them overwhelmed. However, the path to financial security doesn’t have to be daunting. In this blog, we’ll unravel the mysteries of investing, simplify some common jargons, and demonstrate that building wealth can be straightforward and essential. By the end of this article, you’ll be empowered with the knowledge to take confident steps toward your financial goals. And, whenever you need assistance, don’t hesitate to reach out to us at Arthabodhi for personalized investment guidance.
Why should we invest?
Before we move to simplifying the jargons, lets understand why is it important to invest. Investing isn’t just for the wealthy or for a chosen few, rather it is a fundamental step in securing your financial future. Here are some key reasons why investing is important for everyone.
- To Beat Inflation: Beating inflation means earning higher returns from an investment than the inflation rate in the economy. To safeguard and grow your money’s purchasing power over time, investing offers returns that outpace inflation.
- To Achieve Financial Goals: Whether it’s buying a home, funding your children’s education, or retiring early and comfortably, investing is the vehicle that can help you reach these long-term objectives.
- To Generate Passive Income: Investments like stocks, bonds, and real estate can generate a steady stream of income, allowing your hard-earned money to work for you.
- Diversification: By investing in different assets, you can spread risk and potentially enhance your returns, making your financial portfolio more resistant to any fluctuations.
Simplifying Common Investment Jargons
- Stocks / Shares : A share means a unit of ownership in a company. When you invest in stocks, you’re essentially buying a piece of ownership in a company. If the company performs well, the value of your stock may increase.
- Bonds: The simplest way to explain a Bond is, a loan that you can give to a company or government. The Loan is in exchange for periodic interest payments and the return of the bond’s face value when it matures.
- Diversification: Diversifying means not putting all your eggs in one basket. In investments Portfolio diversification means, making investments in different types of asset types to reduce risk of your overall portfolio.
- Portfolio: A portfolio is a collection of your investments, which can include stocks, bonds, real estate, and other assets. Everything you invest in becomes a part of your portfolio.
- Risk Tolerance: Risk tolerance means the extent to which an investor can take risk regarding volatility of investments. To put it straight it is your willingness and ability to tolerate investment losses. Understanding your risk tolerance helps shape your investment strategy.
- Dividends: When we spoke about shares, we spoke of ownership in a company. Companies pay dividends to shareholders, sharing a portion of their profits. Profits are shared with the investors in form of dividends. It’s a way to earn income from your investments.
- Compound Interest: Compound interest the magic behind making money in Investments. In compounding we get interest on the principal amount as well as on the interest which has been accumulated. Compounding is your money working for you, generating earnings that, in turn, generate more earnings over time.
- Asset Allocation: Asset allocation means deciding how much of your money to invest in which asset class like stocks, bonds, mutual funds and cash. Asset allocation helps in diversifying and thus managing the risk.
- Mutual Funds: Mutual Funds is a pool of money collected from a number of investors who share a common objective. This money is managed by a Fund manager and invested in equities, bonds, money market instruments and other securities. They offer instant diversification and professional management.
- Systematic Investment Plan (SIP): SIP is nothing but a mode of investing Mutual Funds, involving regular contributions, typically monthly. It is like a recurring deposit but towards mutual funds investments. It helps you benefit from averaging the cost of your investments.
- Insurance: Insurance is a way by which one can safeguard oneself and their family members against any financial risk. It may be in form of life Insurance, health Insurance or accidental insurance. Insurance is essential for safeguarding financial future. It provides financial security in case of unexpected events, ensuring your investments and family are protected. The biggest mistake people do is to think of Insurance as an investment whereas it is a tool for risk management and mitigation.
Investing should not be daunting. By simplifying jargon and grasping basic concepts, anyone can confidently embark on your investment journey. It is a good idea to use online available resources and attend webinars to understand the world of investments. Remember, we at Arthabodhi here to offer personalized guidance tailored to your unique financial situation. In fact we offer a first free Portfolio review for which you can register right away with a simple click. Investing is a pivotal step toward achieving your financial aspirations, and we’re committed to assisting you every step of the way. Don’t let complexity deter you; start investing today and secure your financial future with ease.