Updated: Aug 12, 2021
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We are usually told to save some money for rainy days. We have this perception that the best way to save money is by depositing it in a bank or putting it in our treasury box at home.
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But in today’s environment of growing inflation, the traditional approach of saving money is equivalent to wasting money as it loses its value over time. What if I tell you that there is a way to save the money as well as make much more from it? You read it right. Investing in stock market is the best use of your money no matter what your risk appetite or size of investment.
If you are still not sure about it, let’s take a look at a number of benefits of investing in stock market.
· Diversification: If you are a type of investor who doesn’t like to take a lot of risk, you can invest in a variety of stocks which are independent of each other to minimize risk. You can choose a portfolio of stocks to maximize returns and minimize risk by employing principles of efficient portfolio management. You won’t have to keep all your apples in the same basket that way. You can also achieve diversification by buying stocks in companies which operate in different sectors.
· Protection against Inflation: Investing in stock market can prove to be a buffer against inflation as a lot of stocks have been beating inflation by providing higher returns for many years. You won’t have to worry about diminishing value of money and reduced purchasing power as you would have invested your money in the right place.
· Liquidity: If you invest in stocks, you won’t have to worry about your money getting stuck as you can sell stocks and get the money any time you want. In case of any emergency, you can easily liquidate your stocks. You can even sell just a proportion of your stocks (and keep the rest) depending upon the amount of money you need.
· Capital Gains: You can earn capital gains by selling the stocks and making money on the difference between the price at which you bought it and the price at which you sold it. It is similar to real estate business where they buy property at a certain price and sell it at a higher price except it is much more liquid and secure.
· Dividend Income: Investment in stocks can also provide you with a stream of income called dividend income where you are paid a certain amount monthly, quarterly, or semi-annually in proportion to the number of stocks that you own.
· Tax advantages: You need to pay lesser taxes on dividend income and capital gains as compared to income from other securities. You also get to delay payment of taxes as you don’t need to pay taxes on appreciation of your share price. You pay taxes only when you sell those shares.
· Access to International Markets: You can invest in firms which are not headquartered in India but are listed on Indian stock exchanges. This gives you an access to international markets, opening up many new prospects, and giving you a lot of options for your efficient wealth management.
· Convenience: It is very easy to invest in stock markets as all the information regarding how to invest is available online. You can also decide where to invest by looking at financial statements and other relevant information, all of which is just a few clicks away. When buying stocks, you just need to provide a little information and you are all set to invest.
Before you invest in stock markets, it is a good idea to check your knowledge and understanding of how to obtain and manage money. We have designed a test that will help determine your Financial Quotient (FQ). This test will help you decide whether you need help from experts to make your investment plans and if you do, to what extent. It will eventually make sure that management of your wealth is not affected by lack of your financial knowledge.
Take the FQ quiz and find out how financially smart you are!