Why Investment Is Important: A Comprehensive Study On Investments, Its Types And Benefits

You must live under a rock if you haven’t heard of the term investment.

From business to your personal life, investment has become a very homely term that we use on a regular basis.

But have you ever wondered why investment is important? Or what purpose does it serve? Or what are the types of investments that you would want to put your money in?

I’m pretty sure that you have not.

Unless you are deeply related to business or finances, it would be impossible for you to have in-depth knowledge about why investment is important or the types in which you can invest.

Well, you can take down the worry off your head for a minute, as I have some good news for you.

To ease your pressure, I have optimized some of the best sources to give you the most precise and detailed information about investments and everything you should know about their types.

What Is An Investment?

Any asset or item that is acquired with the intention of income generation or appreciation is known as an investment. While you may know what income generation is, appreciation is a term that refers to the increasing value of assets over a given time.

So, in easy words, when an individual invests in a good, they don’t mean to use it personally but save it for future use to generate wealth.

An investment is always related to an outlay of some present resources today, like asset, money, time, or effort, which would hopefully have a better payoff in the future than what was generally put into it.

For instance, you are an investor that invested in a monetary asset that is expected to generate a certain income in the future or could be later sold at an increased price to generate profit.

When considering stock investments, an investor might look at specific examples like Goodman Group ASX, which refers to the Goodman Group’s shares on the Australian Securities Exchange. Analyzing the performance, dividend history, and market trends of such stocks can provide insights into how individual companies fare in the market and contribute to a diversified investment portfolio. This approach allows investors to understand the practical aspects of stock investments and make informed decisions based on real-world examples.

Points To Remember

Investment is a term that refers to putting capital to use in the present, whose value will increase in the future.

You are to put capital to work in case of an investment, which could be in the form of money, time, or effort, hoping it will have a greater payoff in the future compared to what it was originally bought at.

The range of investment is huge. It can be any medium or mechanism that can be used to generate wealth in the long term. Therefore investments include stocks, bonds, real estate, or other alternative investments.

You must know that not every investment comes with a profit guarantee. It may happen that, in the course of time, the value of your investment has depreciated.

You may diversify your investments in order to reduce risks; however, that might reduce the amount of potential earnings.

Objectives Of An Investment

Well, you asked us why investment is important, and we are here to give you the answers to it.

However, understanding that the field of investment is huge, and there is a lot more to know than how investing works or the benefits of investing.

So, let us first dive into the objectives of an investment. The need to invest will eventually increase as you move ahead in life. With increasing responsibilities, you will realize the importance of making a good investment in life.

Here are the primary objectives of an investment:

Safeguarding Your Money

If you have invested your money, it actually helps to protect your money from any immediate or unwanted expenditure. It also protects your money from the effects of inflation.

Inflation decreases the value of your money unless you have it invested in an interest-earning asset.

Therefore, investment is a good way to keep up with inflation.

Increase Your Savings

Investment is a very effective way to start saving your money. Invested money grows. When you invest money, it earns interest over time, and if you choose to keep the interest invested as well, it will also start earning interest.

Funding For Emergencies

Life is unpredictable; therefore, you never know what emergencies will occur when. There are times when you are earning a decent amount of money and savings accordingly; however, there are times when you are in need of a big sum for an emergency.

Investment is a big helping hand on such a day in your life.

Retirement Security

Retirement is the time when you don’t have a stable source of income to sustain your life. If you have built a retirement corpus, you can enjoy all the freedoms that come with it.

Saves Tax

You may invest in tax-saving tools like life insurance, PPF, ULIPs, NPS, etc., which lets you claim deductions on your taxable income. Therefore, investing in certain assets can actually help you in reducing your tax liability.

A lot of these investments will also be helpful in reducing your future taxes with taxless maturity values.

Fund For Bigger Life Goals

When you think about why investment is important, think of it like this; does your monthly income suffice for the apartment that you have always wished to own in Manhattan? Or is it enough to get you a new car or build a new house?

However, if you invest small sums of money for a couple of years, these dreams will be achievable.

Importance Of Investments

Now coming to the long-time question of why investment is important. Well, every individual has their personal benefits from their investment choices, but in most cases, the benefits are the same.

By now, you must know that investment is the most effective way to make more money from your own money and also make it secure for the future.

Underlisted are the reasons why investments are important:

Good Source Of Passive Income

The dawn of Covid has taught us a very important lesson that you cannot just solely rely on a singular source of income for the entirety of your life. By some means, if our regular source of income comes to a halt, which will end in financial and personal hardships.

To alleviate this risk, you must have a second source of income that will help you in times of such emergencies. In this case, investments serve a great purpose as they not only help you earn money over your money but also keep it safe and reduce tax liabilities.

Brings Financial Independence

If you are scared of relying on others or an external party after your retirement, investment is the right option for you. You can lead a free life even after retirement if you regularly invest in a retirement Corpus.

The Corpus will generate a passive income that will help you live a comfortable life where you can pay for your own needs even after retirement.

Helps You Follow Your Passion

Imagine you are a corporate employee that wants to become a music director. But learning music is expensive, and musical instruments are costly.

In this case, you regularly invest from your income sources; it can help you in the future to generate a large sum of money that you spend after your dreams.

Helps To Beat Inflation

Inflation is a phenomenon that none of us can avoid, even if we want to. It decreases the purchasing power of the money that you have and eventually makes you poorer. If you don’t take serious measures in this case, you can land up in serious trouble.

The best way to fight inflation is to invest the money you got in your hands at present. If you invest regularly, you will be able to beat inflation, and nor will your purchasing power go down.

Taxation Benefits

As I have mentioned earlier, investments can fetch you tax benefits too. There are many investment tools that provide tax benefits under various Income Tax acts. You may invest wisely in order to decrease your tax burden.

Categories Of Investment

You may expect a specific degree of risk and return ratio depending on the type of assets that you choose to invest in. Based on that, we have divided investment into the following three categories.

Owner’s Equity

These are considered some of the most high-risk investments as you are holding an ownership stake directly. As an owner, you will only be able to earn after you have paid for all the liabilities and expenses.

If you invest in an ownership stake, it makes you directly involved with the profits and losses that the company incurs.

Lending

It is a much safer investment that contradicts the owner’s equity. In lending, you get to secure a commitment from the borrower to pay interest that is charged on the borrowed money.

However, the rate of return that is generated is also considerably low.

Money Market Participation

A money market obligation is a short-term debt commitment that lasts for a year or less. These include Commercial Papers, T-Bills, etc.

These investments will earn you less, but they are considerably safer.

Types Of Investments

You may know why investment is important, but it is also important to know what are the types of investments that you must take into consideration.

The categories of an investment must not be confused with the types. Whereas the categories are solely dependent on the profit risk ratio, the type are parts of the broader three categories.

Hence, the type of investments is therefore listed below:

Stocks Or Equities
Bonds Or Fixed Income Securities
Mutual Funds And Index Funds
Real Estate
Cryptocurrency
Collectibles

Let us now get into the depth of what these types of investments are and why investment is important over this range of investments.

Stocks Or Equities

When you own a stock or equity in a particular company, that means you have a direct ownership piece over a public or private enterprise.

By owning the stocks of the company, you get directly entitled to the dividends that are distributed through the net profit of the organization.

With the success of the company, more and more investors take ownership of the stocks of the company, which can later get appreciated or sold off for capital profits.

Bonds Or Fixed Income Securities

A bond is a type of investment that asks for a beforehand investment and continues with recurring payments for the rest of the life of the bond. After the bond has matured, the investor then gets the entirety of the invested capital back.

Mutual Funds And Index Funds

If you want to avoid the hassle of individually investing in different companies, mutual funds, index funds, or any other such fund is the perfect choice for you.

If you are investing in a mutual fund, you can buy a single share of multiple companies that fall under mutual funds rather than investing in any one.

Real Estate

A real estate investment is the type of investment that mostly defines investing in tangible or physical spaces that can be used for personal or commercial purposes.

Real estate investments include land which you can build on, warehouses for the storage of commodities, or residential properties where families can live.

Cryptocurrency

You have heard of the term cryptocurrency recently, as it is a very newer form of investment tool. This is blockchain currency, which is mainly used to transact or own digital properties.

Crypto companies issue you with crypto coins or tokens that you may appreciate over a given time period. You can use these coins to purchase or pay for certain digital commodities.

Collectibles

This is a less traditional way of investing. You can acquire items that have great value restored to them. These artifacts can have historical importance or other importance that could be worth investing in.

You may have seen people investing in historical paintings or artifacts that are priceless at

present.

How To Start Investing

The best way to invest your money is to know how to invest it. Not all investments are suitable for you and may not yield profits.

These are the primary ways in which you can start investing your money.

Do a proper research
Create a personal expenditure plan
Understand the liquidity restrictions
Look for the tax restrictions
Measure your risk preference
Consult a professional

The Bottom Line

This article precisely deals with what investing is, why investment is important for your money matters, the types, benefits, and how you should start investing.

However, before making any concrete decision, you must always consider talking to a consultant or a professional who will guide you through the entire process of investing.

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upasana sarbajna

Upasana is a budding journalist who has a keen interest in writing. She considers writing as therapeutic and is most confident when she writes. She is passionate about music, movies and fashion. She writes in a way that connects with the audience in a personal level. She is optimistic, fun loving and opinionated.

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