From dreaming to doing: How smart investing turns aspirations into achievements
Saving is undoubtedly the first step to building wealth. However, your savings alone cannot fulfil your dreams of travelling around the world or owning a home in your favourite locality. You must make your money work harder for you – hard enough to ensure that your wealth grows at a faster pace than inflation. And this is exactly what investing smart is all about.
Be money-smart
Google search data indicates that queries about navigating uncertain financial times while being able to enjoy the little luxuries of life have significantly increased since the pandemic. On the one hand, people realise that their time on this earth is limited, and on the other, they recognize the importance of having the means to spend comfortably. This is why wealth creation trumps savings today.
Consider the Nifty 50, India’s benchmark stock index. It has appreciated over 89% in the past 5 years. When considered for 30 years, from 1993 to 2022, most investment classes have outpaced inflation, which averaged 2.5%. For instance, mid-cap stocks yielded returns of 11.07%, large-caps 9.6% and small-caps 8.5%. On the other hand, cash in a savings account only returned 2.3%.
Smart investing outpaces inflation
The foremost thing to do with your income is to create an emergency fund. Once sufficient liquidity is built for rainy days, you can look beyond the peace of mind of having “enough.”
In India, return rates on savings accounts or bank deposits range from 2% to 7% in the short term. However, returns from the financial markets have averaged around 12% in the 5 years from 2018 to 2023.
What does investing smart mean?
The three pillars of investing smart are:
Build wealth harnessing the power of compounding: The best thing about investments is that you can start small, with whatever capital your income and expenses allow. But you need to give your money time to grow. So, you should start as early as you can. For instance, by investing ₹30,000 every month in an index fund with a 12% return, one can build over ₹48 lakhs in 8 years. Even if the timeframe is 5 years, compounding will give returns of about ₹24 lakhs.