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 What is
‘Investing’ and how is it different from ‘Savings’?
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What
is a Share?
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Should
we invest in Stock Markets?
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What
are the follow-up steps to be taken after investment in shares?
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What is ‘Investing’ and how
is it different from ‘Savings’?
'Investing' means building up to meet future consumption demand with the intention
of making profits while 'Saving' is not consuming everything today and leaving something
for tomorrow. When we 'invest', we forego our present consumption or do it out of
our surplus. In other words, 'Savings' again supports 'Investment'. When you invest
your savings, it has morphed into Risk Capital which can be eroded. Risk can be
minimized by choosing to invest in low risk investments. The risk associated with
each investment changes with time, and must be monitored carefully.
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What is a Share?
A share is a single unit of ownership in a company, mutual fund or limited partnership.
When you purchase shares, you become part owner of a company. As an owner, you are
usually entitled to voting rights and to a share of the company's profits, a portion
of which is distributed in the form of cash dividends. Dividends are not guaranteed.
They may be increased if the company performs well, but they may also be reduced
or eliminated if the company performs poorly.
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Should we invest in Stock Markets?
The answer to this question is a definite Yes. Although past performance cannot
guarantee future market results, stocks historically have outperformed all other
long-term financial assets. It is the only financial asset that has significantly
outpaced inflation over time. The only important factor to be kept in mind is that
investment should always be made with an objective in mind and we should not be
too greedy while investing.
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What are the follow-up steps to be taken
after investment in shares?
It is necessary to review your financial position regularly, at least once a fortnight.
Re-evaluate your portfolio to find whether you are making the best of the money
you save and invest. Are you happy that you are getting the best possible returns
from your investments? Do they fit in with your current 'risk profile'
- should you, if you are getting closer to retirement, be thinking about reducing
the level of risk in your portfolio of investments or should you actually be thinking
about taking a few more risks if you have plenty of time in which to build up an
investment?
Are your short-term investments giving you the desired rate of return or are you
trapped by buying the stock at its peak? Book losses on these shares and try to
invest in shares where you can make up for the losses.
In case of long term investment, track news on the stocks regularly. If there is
a change in business environment, management or future profitability, the valuation
of stocks will change accordingly, and hence the target price will also change.
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