When I was a kid my dad bought me a small money plant and a piggy bank. While giving it to me he said, ‘The more I save in my piggy bank, sooner the money plant would grow.’
The money plant became my motivation to save more. At the end of the year I would sit and count the total saved corpus and to my surprise, the amount grew year on year.
Soon I realised that I was developing a hobby of accumulating a higher corpus every year. And to make it even huge, I would need a ‘Real money plant’.
Yes! The stock markets can be the right epitome of a money plant. It has worked for me and would work for you too!
In this article, you will explore why you should invest in the stock markets and why I refer to it as a money plant.
So, let’s begin.
1. Invest in the stock market to win against inflation
You must have probably heard about the term inflation. It is a slow and steady process where the prices of goods rise in time.
Remember how our parents and grandparents used to tell us ‘Humare Zamane Me’ tales? where they would purchase everything at incredibly low prices starting from groceries, movie tickets to even a vada pav.
This simply means that your hard earned money is slowly losing its value over time.
So, if your 7 lakhs today can buy you a brand new car. In the next 30 years if you take the same money out of your locker, it may only be able to buy you a new bike!
And if you had saved money for a new bike, in the next 30 years you would be able to buy a bicycle for the same amount.
Sounds creepy right.
The rates of inflation vary over time. But to keep your money from eroding its value you just need to invest in an asset that can provide inflation beating returns.
With the current inflation rates, stock markets are the only investment avenue that can provide inflation beating returns.
So if you invest your 7 lakhs diligently in the stock market you can even buy a luxury car of your choice soon.
2. Invest in the stock market as historically they have provided great returns.
You just saw a glimpse of this in the point above. But if we look at a larger picture of S&P BSE Sensex they have provided exceptionally awesome returns over time.
Yes, the stock markets are volatile. But overall the indices and stocks have formed a steady march upwards.
If you would have bought a stock and held them for 20 to 30 years, you would have made a lot of money.
In fact, if you would have invested Rs 100 in Sensex in 1979 it would have grown to Rs 47,000 in 2016. A CAGR of 18.14% excluding dividends.
|Investment amount in the year 1979||Total Corpus in the year 2021|
|Rs 100||Rs 47,719|
|Rs 1,000||Rs 4,77,186|
|Rs 10,000||Rs 47,71,861|
3. Invest in the Stock market to achieve the Power of Compounding
Albert Einstein said ‘Power of compounding is the 8th wonder of the world’.
Wondering why is it so?
To understand the power of compounding better let’s solve a simple riddle.
What do you think if a person invests Rs 5,000 a month in an investment that earns 16% returns for 30 years? What would be his total invested corpus and what would be the total returns he would get at the end of the tenure?
To your surprise, the invested corpus would be just Rs 18 lakh and the returns you would get is whopping Rs 4.44 crores.
That’s a crazy amount of money and there’s a reason people often call it as “the magic of compound interest”.
So, if you start early, save steadily, and invest diligently, your money can grow amazingly over time.
4. Invest in the stock market to earn passive income
You must be thinking what is passive income?
It is a form of income where you earn with minimal effort. Such income can be earned by investing in the stock markets and by earning dividends.
Dividends are payments made by a company to its shareholders. The dividend amount varies as per the decision of the management. However, not all stocks offer dividends. But you can always invest in dividend paying stocks to earn regular returns.
5. Invest in the stock market for diversification
Investing in stocks allow you to mitigate risks by investing in a diverse manner.
What does ‘diversification’ mean?
Diversification means spreading out investments across assets in such a way that you earn optimal returns with minimum risk.
When you own a stock of a company, you are owning a part of the company and they are generally considered risky. Hence, you can diversify your portfolio by investing in Gold or other asset classes which are negatively correlated with stocks.
6. Invest in the stock market to own a part of the company you love.
Starting your own company is a tough job. But what if you can be a part-owner of your favourite company?
So, if you are like me who loves pizza’s, you can simply own a part of Jubilant FoodWorks Ltd.
If you want to be a part-owner of a bank, you can buy few shares of HDFC Bank or Kotak Bank.
By owning shares of your favourite companies you can even participate in major decisions of the company.
You must have heard people say, ‘Make your money work for you’ and the stock market is the only investment option that can make these dreams come true.
If you want to make your dreams a reality, then start investing right now…
If you don’t have a Demat account yet, then you could open it with Samco. It’s absolutely free and comes with several benefits.
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