Why invest in Stock Market?
India with a population of almost 1.38 billion, only 4% of people invest in stock-market directly. Most Indians are unaware of the benefits of investing or creating a long-term portfolio in the side. So, lets try to crack the question why to invest in stock market step by step.
1. Bank the silent killer!
Most people secure their savings by putting it as fixed deposit in a bank account. The maximum a bank gives as a yearly interest is 6.75% (In cooperative banks). And national banks are lower than that (5% or low). So why is this a problem? The answer is inflation.
In India according to report by RBI, as of may 2020, inflation is at an all time high of 6.2%. Let’s break that down. Consider you can buy a kilogram of apple for ₹100 in January. With the current inflation of 6.2%, by December, you can buy the same amount of apple for ₹106. If you had put the ₹100 in a national bank in January instead of buying apples, it will be around ₹105 by December. This means the same money used in January to buy apple is not enough to buy that in December even with the interest. Instead, you are losing the money you have by 1%. This is the power of inflation.
Indian stock market has grown more than 11% year to date. That is more than 4% increase even after inflation!
2. The power of Compounding
As Albert Einstein famously said, “Compound Interest is the 8th wonder of the world. He who understands it, earns it; he who doesn’t, pays it.”
In the long run, stock market is one of the greatest compounding machines. A good company will compound your money the way you can’t even keep up. Warren Buffet is a great example for this phenomenon.
3. Don’t put all your eggs in one basket
It is always good to have more than one source of income. For example, if you are a small shop owner, the sudden lock-down due to COVID-19 would have been a hard punch. But if you had other income sources, like stock market, then the story would have been different. If one source goes down, other sources will support you along.
4. To be a part
Owning the shares of a company is like owing a part of a company. You can be a part of a company with the right to vote, annual dividends and the profit from share price rise. When the company grows, you can grow with it.
5. Believe in the Country
The growth of the GDP of a country reflects its stock market in a long run. If you believe in the growth of your country, then you can believe in stock market.
CAUTION!!!
Entering stock market without knowledge is like gambling. Avoid it. In the age of Google and YouTube, knowledge is free to attain. You don’t need high IQ for investing. All you need is an attitude to not give up. There are many ways to invest your money safely. All that takes is that one step.
