The Dangers of Not Investing

The writer is a Delhi based Certified Financial Planner CFPCM, conferred upon by the
Financial Planning Standards Board. If you are an Indian resident looking for a financial plan prepared according to your needs & goals, write to her at shruti(AT)richesawait.com

So many people, in spite of knowing that they should invest their money for a better future, have not started their investment journey yet. What’s even more shocking are the reasons behind this delay. Usually, if someone has not started investing yet it is due to one of the following excuses:

  1. Procrastination
    “I don’t have time” or “I’m busy this weekend” or “I’m in no rush, what’s the hurry?”
    Or the classic “Idle money in my account is not that harmful, at least I’m saving some.”
  2. Timing the Market
    “Market is at an all time high, investing right now will be foolish, it’s better to wait for a more favorable time.”
  3. Fear of the Unknown
    “It’s a such a hassle! I’ll have to learn about taxation & compliance & I’ll have to research about all the different investment types. It’s so much work.”
  4. Risk Aversion
    “My uncle told me investing in stock market is like gambling. My mama didn’t raise no gambler!”

If you are justifying not investing due to any of the excuses stated above, well my friend you are just fooling yourself.

“The best time to plant a tree was 20 years ago. The second best time is now.”

– Old Chinese proverb

Idle money in your bank account is losing value everyday. Surprised? Well it’s true. And you know what makes it a fact? Inflation & Compounding – the two most easily overlooked but critical elements.

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Let’s try and understand what happens when you don’t invest your money properly:

  • If you are not investing money, you are losing money
    If you are not investing, it means your money is in a savings bank account (& not under your mattress, hopefully). In India you earn around 4% annually from such accounts & inflation is around 6 to 7%. So clearly you are losing money by keeping it idle. Although you might feel safe because the principal is intact, but you are ignoring the fact that the purchasing power of your money is getting reduced daily due to inflation.
    Inflation is like a termite infestation. It has already eaten up quite a lot of your wealth. Just ask your parents & they’ll tell you how much stuff they used to buy back in the day with one rupee or one dollar. That’s inflation.
    The choice is yours, do you want to let it consume more of your hard-earned money by doing nothing or will you take charge and invest today so that inflation effects can be negated?
  • If you are not investing money, you’ll never achieve your life goals
    Compounding is the only (legal & ethical) way to achieve your life goals. Tiny sums can snowball into a large amount over time. As for how compounding works, I have already explained it in detail in an earlier post. For the magic of compounding to work, you have to give it time, and by delaying your investment even by a single day you are losing out

Here’s something to think about:

  1. Take money out of your savings bank account & invest it wisely. Understand how much risk you are comfortable with and invest according to your risk profile. Also don’t try and mimic someone else’s portfolio, nor should you invest your money based on tips from friends or family. Understand your needs and circumstances and invest accordingly.
  2. Instead of timing the market spend time in the market to make the most out of your money. Whenever you start investing, time and compounding are on your side, so instead of wondering about whether it is the right time or not, decide how much time you are going to invest. There is no right time to do the right thing, and investing your money is surely the right thing to do.
    If you are really really worried about losing money due to bad timing, don’t invest all your money in one go. Opt for either a Systeamtic Investment Plan or a Systematic Transfer Plan, this way your money will be invested in small chunks and you will not lose sleep. Start with a small amount if you are uncertain. Once you see your small investment gaining momentum you will start investing more.
  3. Every new journey is scary and it’s natural to feel a bit nervous when you are investing for the first time. But the best part about your investment journey is that if you understand and stick to just 4 fundamental rules you are set. They are – Be Regular, Diversify, Think long term and Don’t let emotions rule you. If you are following the basics trust me the chances of you achieving your goal with investing are much higher than the chances of you losing your money.
  4. Investing is gambling only if you invest your entire life savings into a hot stock tip your neighbour’s cousin gave you. Stock markets seem scary but you don’t have to become the mad stereotypical stockbroker.
    Mutual funds are the right way to go about investing because picking individual stocks & carefully investing in them & getting out when it is tanking is all a bit too much & demands time and effort that you can not spare. If you pick the right mutual funds you don’t have to do much, the fund manager & his team does everything he can to grow your principal.

If you follow the basics and make sure that you don’t make any common investment mistakes the sky is the limit for you.

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