Here's why you should be investing in stocks?

Are you someone who keeps refraining from investing in stocks just because your aunt or uncle said so! Well, here's a simple guide to help you understand why it is high time to say bye-bye to your worries and start investing in stocks.

Here's why you should be investing in stocks?
Here's why you should be investing in stocks
Every once in a while, the market does something so stupid it takes your breath away.
~ Jim Cramer

Now, this might scare you or inspire you, depending on how clearly you understand the stock market. For a very long time, our knowledge of the stock market has come from our parents and close kins. Either way, they ended up scaring us or making us skeptical about the stock market. Well, the only possible source of such an opinion could be the 'isolated know-how' of the stock market situation pre-1990s (remember the 1992 Harshad Mehta Scam!).

Well, the good news is that just after the scam was reported, SEBI was established as a statutory body to actively regulate the stock market in India to protect the interest of investors from such frauds. It is, therefore, important to first unlearn some of the misconceptions that your elders keep feeding you before you start studying about the stock market.

Through this article, we will help you understand the reasons why it is high time to say bye-bye to your worries and start investing in stocks.

Higher returns

Potential returns from various instruments of investments.

If you look at the different investment-related instruments, you'll find that stock investing promises comparatively higher returns. For example, the annual rate of return you can get from a savings deposit and a fixed deposit in a bank is 3-4% and 5-6%, respectively. However, investing in stocks can give you an expected annual return rate of 15-18%. Moreover, even if there is an inflation of say 6% in a year, you'll still be able to retain comparatively more value by investing in stocks.

When in doubt- Look Back!

When we start studying the stock market, we cannot study the present market situation in isolation from the past. Understand it with this example. If you have doubts (gazillion thoughts!) about buying stocks, think about the person who made an 'intelligent investment' of Rs. 10,000 in Wipro in 1980. Today, it would mean owning shares of Wipro worth Rs. 500 cr.!

Well, the point is, in the long run, economies are bound to grow and you will only receive shockingly higher returns!

Power of Compounding

Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it.
- Albert Einstein

Let's understand it this way. Suppose you buy a share worth Rs. 1,00,000 of a Company X. Now, considering that:

  • the share gives you an annual return of say 15% for 30 consecutive years, and
  • you do not take out your money.

Your money can exponentially increase! The reason is that the investment in a company not only gives you a return on initial investment but also on the subsequent dividends and bonus shares. This is the 'magic of compound interest.'

To understand better, look at the below table:

Time Period

Principal Amount (Rs.)

Total Returns (Rs.)

5  years

1,00,000

2,01,136

10 years

1,00,000

4,04,556

15 years

1,00,000

8,13,706

20 years

1,00,000

16,36,654

25 years

1,00,000

32,91,895

30 years

1,00,000

66,21,177

Principal investment = Rs. 1,00,000

Thus, the total value of your share (after 30 years @ 15%) = Rs. 66,21,177

Additional benefits

Here are some more benefits to consider:

  1. Dividends and bonuses: Rather than investing the profits, some companies decide to share the profits with the respective shareholders of the company. Profits given in the form of money are called dividends. Profits given as a free share are called a bonus.
  2. Collateral: Your stocks can be used as collateral to get loans.
  3. Ownership: When you buy shares of a company, you also get ownership rights. In other words, owning a substantial share in a company gives you a voice in the day-to-day decision makings of the company. (Guess what! You can proudly say, "I own Reliance!").

Conclusion

It is important to note that stock investing does have its trials and risks. The higher the return, the more the risk it involves. However, if you read Robert D. Arnott, a successful American entrepreneur, and investor, he has rightly said, "in investing, what is comfortable is rarely profitable."

Nevertheless, the risk-mitigation measures are always present to lower the setback. At captwist.in, we work to simplify this investing process for you. So, believe us when we say, what you need is a basic understanding of stock marketing and its working. And surprisingly, you are good to go.