The first question which comes to our mind is why should we invest in stock market. I would like to explain in detail the advantages of investing in stock market.
First, let us look at the graph which shows the movement of SENSEX(Indian Stock Market Index) from 1979-2018.
From the graph, we can see how the price has increased from 1979-2018. In Dec 1979 it was around Rs 113 which increased to Rs 34,000 in Dec 2017 giving a CAGR(Compounded Annual Growth Rate) of 16% which is very high than a normal fixed Deposit return. What is CAGR???This we will cover up in the later part of the post. Now, we will see the main reasons to invest in stock market.
Why Should We Invest In Stock Market:
1. It’s Like Owning a Business.
Yes, you heard it right, if you want to be an entrepreneur think stock market investment like an owner. Don’t trade. Understand the business of the company in which you in. The stock of a company should be seen as an part ownership in the company.
Before putting your hard-earned money in any company, research about the company, work hard with patience and if the company performs, you will also get great returns.
As Tim Ferris says, “Be neither the boss nor employee, but the owner. To own the trains, and have someone else ensure they run on time”.
2. minimum Capital required
To start investing in stock market, you just require few hundred rupees. It is one of the least capital-intensive business. Within few clicks, you can buy shares of a company.
In comparison with other business which is usually capital intensive, stock market investing requires less amount of capital.
3. Easy to sell
Unlike other businesses where it becomes difficult to sell, In stock market if you are not happy with the performance of the company which you had bought previously, you can simply sell the shares of the company with one click.
It is very easy to buy and sell the business within few clicks in Stock Market Investing. 🙂 🙂 🙂
4. Magic of compound interest
Let me elaborate with an example
Amount invested in a year will be Rs 360,000.
Suppose you without any gap in a month saves Rs 30,000 every month and keeps investing regularly for 4 years, your total investment will be of Rs 1,440,000(Rs 360,000*4). Now due to some reason, you stopped the investment but didn’t touch the investment for 25 years. We will keep CAGR(Compounded Annual Growth Rate) of 20%.
We will put these value in the magic formula. It’s a magic formula which was taught when we were kids, but unfortunately, many people don’t use it. OK, let me reveal the magic formula. It is “Compound Interest”.
A = P(1+R/100)^T
A = Total Amount
P = Principal Amount Invested
R = Rate of return i.e CAGR
T = Time (Most Important Thing)
Now, we will put the value which we have calculated above.
P = Rs 1,440,000
R = 20%
T = 25 years
So, A = 1,440,000(1+20/100)^25 = 13.48Cr
Yes, you heard it right it will fetch you whopping 13.48 Cr in 25 years. The most important thing to remember is to wait. It takes time to build money, that also hard earned money.
You can change Rate of return on your own. Please note don’t be greedy and increase your rate of return beyond 30%. I have kept it 20% as many good mutual funds are able to deliver around 17 to 18% in past 10 years.
Time also can be changed according to your need. Plus I have considered the amount of when you would stop investing excluding initial first four years.
As great Albert Einstein has said it wonderfully “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.Compound interest is the most powerful force in the universe.”
Don’t be greedy and put money beyond your capacity, plus do proper research if you are investing in good mutual funds or do your own complete research before adding money in any stock.