What is Investing? Investment Meaning, Importance, and How to Invest

As individuals, we earn money, save a portion of it, and keep it securely in a bank account. However, this neither helps you build wealth nor grow your money, as it loses its value to inflation and rising prices of goods and services. Investing helps you achieve both, but only a relatively small proportion of people globally invest in any assets.

While saving money is important, it is often not enough to grow your wealth. When you invest, your money works for you and helps you build wealth slowly and steadily. In this beginner investing guide, we will understand what is investing and how it works.

Investing Basics: What Is Investing?

Investing refers to the process of putting your idle money in different assets like real estate, stocks, mutual funds, and/or bonds to generate profit or returns. When you invest, your money works for you. It can make you accumulate wealth gradually, particularly when you remain invested over a long period.

Suppose, you deposit $1,00,000 in a savings account with an interest rate of 3% per annum. Meanwhile, prices are increasing at an average rate of 3% per year as a result of inflation. This implies that your money is increasing at a slower rate and your expenses are increasing at a higher rate. Investing not only helps you build wealth, but also helps you stay ahead of inflation.

How Investment Works

To understand how investing works, consider it as putting your money to work rather than letting it lie idle. You invest your money by purchasing real estate, buying shares, funding a business, or buying gold. As their value increases over time, it provides you with additional income known as return.

Purchasing company stock, for instance, allows you to profit if the business succeeds and the share price increases. Another example is when you buy a property. As its price appreciates, you earn profit when you sell that asset.

There are, however, different risks associated with different asset classes. Time, perseverance, and a willingness to take chances are necessary for successful investing. However, investing can be quite profitable if done carefully and correctly.

Benefits of Investing as a Beginner

Here are all the ways investing helps you grow your money and why one must begin their investment journey early on in their career:

1. Grow Wealth Slowly and Steadily

Your money is not lying around when you make regular investments. With time, it increases by interest, dividends or by price appreciation. Even a small sum that is invested will always pay off in the long run. Herein lies the power of compounding of wealth, which is the basis of smart investing.

2. Helps Achieve Financial Objectives

Besides growing your wealth, investing also helps you achieve both your short-term and long-term objectives. For example:

• You can invest a small amount per month in a mutual fund or systematic investment plan (SIP). When it grows in 5-10 years, you can use the funds to either make a down payment for a new house or finance it completely.
• You can start early and invest regularly for your child’s future. Your investments can help cover education expenses when needed.
• Start investing for retirement early. Over the years, your money grows to support a comfortable life after you stop working.

3. Creates Financial Security

Life can be unpredictable, and expenses can pile up at any moment. Investments, in these situations, provide you with a financial security net. Invested money offers security and peace of mind, whether it is an emergency, unexpected expenses or future planning.

Types of Investments You Can Start with

Here is a list of all the assets that you can invest in:

1. Stocks (Shares)

Purchasing stocks is the equivalent of owning a small part of a company. There are two ways of making money: when the company grows, the stock price increases (capital gains), and when the company pays dividends, which are the profits of the company paid to the shareholders. Stocks may yield high returns, but they may rise and fall very fast; hence, they are riskier.

2. Bonds

Bonds are like lending money to a company or the government. They, in turn, charge regular interest and give you back your initial money at the expiry of the term. Bonds are considered to be safer than stocks, but the returns are typically lower. They are also suitable for individuals who like stability.

3. Gold

Gold is a common and conventional investment type in the world. You can purchase physical gold (coins, jewellery, bars) and hold it for the time being. Gold prices always increase gradually with time, making it a safe haven investment in times of economic uncertainty or inflation.

4. Real Estate

The returns of investing in property, such as houses, apartments or commercial spaces, can be in two forms: rent and property price appreciation. Investing in real estate requires more capital, but it is a long-term and solid investment.

5. Mutual Funds

Mutual funds combine the funds of numerous investors and invest them in a combination of stocks, bonds, or other assets. It is easier because a professional fund manager tackles the difficult task of strategising on your behalf. It often provides good long-term returns based on the kind of fund you invest in (equity, debt or hybrid).

6. Fixed Deposits (FDs)

FDs are bank accounts in which you deposit your money at a specified rate of interest over a specified time. They are highly secure and offer predictable returns, and are therefore suitable for conservative investors. Nonetheless, the returns are low relative to stocks or mutual funds.

How Much and When to Start Investing: Investing For Beginners

The biggest myth regarding investing is that you need a huge sum of money to start investing. The fact is that you can begin to invest even with a small sum, and it is better to invest early than to wait till you have more to invest. Here is how much and when to start investing:

• No Minimum or Maximum Amount: Investing does not require much to start with, as you can start with a relatively low amount. There are numerous investment opportunities, such as Mutual Funds via a Systematic Investment Plan (SIP), which you can begin with small sums.
• Start Early: The sooner you invest, the more time your money has to increase. This is due to the effect of compounding, which is that your returns begin to earn returns. An early start is a huge benefit to long-term wealth creation.

Simple Steps to Start Investing: Beginner Investing Guide

The following is an easy guide to investing as a beginner in four simple steps:

1. Set a Clear Goal: You need to determine what you want to accomplish before you invest. Are you saving for:
   1. A house
   2. Your child’s education
   3. Retirement
   4. An emergency fund
2. Know Your Risk Level: Various investments have varying degrees of risk. Ask yourself:
   1. Can I manage an increase and a decrease in my investment value?
   2. Will I be satisfied with gradual, consistent growth, or will I prefer greater, quicker returns?
3. Select a Basic Investment: To begin with, the simple and safe ones are recommended to beginners:
   1. Gold as a security and inflation hedge.
   2. Guaranteed returns in Fixed Deposits (FDs).
   3. Long-term growth Mutual Funds (SIP).
4. Invest Regularly and Be Patient: Even small regular investments increase with time due to the effect of compounding. Be patient, do not respond to the temporary fluctuations in the market.

Conclusion

Investing is one of the easiest ways of making your money grow and meet your financial objectives. Even little sums, spent habitually and prudently, may be great in the long run. It not only helps to safeguard your money against inflation but also provides financial security and future wealth.

The key, however, is to start early and always diversify your investment by spreading it across different asset classes. Anyone can begin their path to financial growth by learning the fundamentals and taking small incremental steps towards achieving their financial goals.

Disclaimer: The information provided in this article is for educational and informational purposes only and should not be considered financial, investment, or trading advice.