It is often assumed that investing is an extremely complicated process and should be left to professionals. Although professionals are trained to manage your finances better, you need to first get over your fear of the subject. Here are some of the common myths that people have about investing.
1. Young people need not invest. It can be done later.
Investing, as with anything in life, benefits from an early start. The earlier you start, the greater is your potential return on investment. The game of investing is all about compound interest, the greater the principal amount, the greater the interest. Essentially compound interest is the interest earned on interest. By continuously investing and reinvesting your earnings, you are exponentially increasing your ROI (return on investment).
Let us understand this with an example:
X is 25 years old and starts investing Rs. 1,000 per month for 35 years at a return of 12% per annum. The corpus left with X at the end of 20 years will be around Rs. 6.4 million. Y started investing a little late and invests the amount of Rs. 2,000 for say 30 years at the same rate. The corpus left with Y at the end of 30 years will only be Rs. 35 lakhs.
See the difference only 5 years can make? Thus, beginning to invest early in your career can help you in building a secure future.
2. If you don’t start on time, you’ve missed the bus.
It’s better to be late than never. The magic of compound interest starts happening the day you start investing. Yes, it would have been ideal if you have started to invest early but keep in mind it’s not just about the years but also about the money you are investing. If you want to earn a little more on your investment you can always increase your principal amount by just a little and that extra amount will go a long way when compounded and will increase your earnings in the long run.
Future planning is the most important thing and a financially secure future after retiring is what everyone needs. To live that financially secure future you, should start investing right away.
3. You need lots of capital to invest.
The myth of all myths, you do not need a bucketload of money for investing. You can start by investing an amount as little as Rs. 2,000 per month – something that every professional can afford. The wide range of products in the market caters to needs and risk appetites of almost every investor. This allows you to invest small amounts of money every month, the magic of compounding will take care of the rest.
By investing an amount as little as this from the income you earn, you are investing in a financially secure future and you don’t even have to worry about all the market conditions and the ever-changing money market.
4. Insurance is an expense, not an investment.
Insurance is an agreement between the insured (you) and the insurer (the insurance company) to pay a certain amount of money if something unfortunate happens to the insured for which you have to pay a certain amount of money for a given number of years, called premium.
While pure term plans only provide protection (claim in case of death), the product innovation over the last few years has brought plenty of options to satiate all your finanacial needs. Whether it is retirement planning, child’s education funding or exposure to equity share investment (ULIP), insurance is a lucrative investment option, especially considering after-tax returns, since both premium and maturity amount is exempt from tax.