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Different investments provide different returns

Invest in time – it makes a world of a difference

Different investments provide different returnsInvestment of money is an issue we all have to deal with. Why is investment of funds so important? Here are some reasons why it is necessary to invest in time:

Inflation: We notice in our day to day lives, that the prices of most items keeps on increasing. The purchasing power of money does not remain the same but goes on diminishing. If you could buy an item for $100 today, you may need to pay % 110 for the same product in a years time. If, during that one year period, you happened to keep you money idle without investing it, you would no longer be in a position to purchase it now. Hence you need to invest your funds in such a manner that it earns sufficiently to cover the increase in costs or inflation.

Invest for adequate returns: Different investments provide different returns. Savings bank accounts provide a low rate of return but stocks and shares of companies can provide a much higher rate of investment. Higher returns come with a higher risk and hence must be selected very judiciously. The thumb rule is to ensure that the rate of return is more than the rate of inflation. Not all investment opportunities are available at all times hence we must learn to invest in time and seize good investment options. Investment in stock markets after an unexpected crash may be a good opportunity to pick valuable stocks at low prices.

Invest towards your financial goals: Investment must be aimed at creating the corpus required for financing your goals. For example, if you plan to buy a house after five years you would need to invest a periodic amount regularly which, together with the returns earned would equal the projected cost of the house.

Financial Contingencies: Contingencies are unexpected occurrences such as an accident, a sickness, natural calamities etc. Contingencies are likely to have financial implications which can often be very significant. Hence we need to invest funds for meeting these events.

A systematic investment plan is essential to make proper investment decisions. The first step is to draw up your financial goals. Then plan on the methods you will use to achieve them.

When is the right time to start investing?

The simplest answer to this question is “right now”! There is always a tendency to postpone investments to a later time. Each person feel that the present need not be sacrificed and spending to live comfortably in the present is justified. With financial goals in mind, it is much easier to determine the funds that required for the future plans. Only the balance can and should be used for current expenditure. An advantage of doing this exercise is that the person has an opportunity to explore new sources of income if he discovers that his total income is not sufficient to meet present and future needs.

The power of compounding is not to be underestimated. Compound interest gives an added benefit of interest on interest. While simple interest is calculated only on the amount invested, compound interest is calculated on the amount invested plus interest earned till the date of compounding. For example consider $100 invested for a period of two years at the rate of 10%. Simple interest would be $10 each for year 1 and 2 (100 x 10%) whereas compound interest would be $10 for the year 1 (100 x10%) and $ 11 for year 2 (100+10) x 10%. The power of compounding increases over longer periods of time and as per the frequency of compounding (monthly, quarterly, yearly) A person who stars investing at a young age will find it easier to fulfil his financial goals.
Invest in time to make life easier for yourself. As the investor has already invested in time to study, to learn, to explore, for more successful future or business he is not likely to have to abandon any of his plans due to lack of funding.

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