Investing in Today’s World
“Investment is saving the future”, an Indian in me says.
We Indians are pro in savings as much evidence suggests. But when it comes to investing, we lack knowledge. Financial literacy is not that common in our country. When we start to think about investing, we usually go for traditional methods of Fixed Deposits, Gold, Land, or house buying. But in today’s world, as the market has become so volatile, we need modern solutions for investing. Many of us are aware of stock markets and asset allocations, but due to prejudices we never dare to invest in one. So, to give some insights into this subject matter hereby presenting this blog.
To start with, let's discuss the stock market. The concept of the Stock Market is in place for more than five centuries now. As Europeans sailed out for trading in different continents, the buying and selling gave aspects to profits, assets, values to bonds and many more. It got picked up in the Industrial Revolution and till today and maybe in future if Corona like viruses have mercy, the stock market will be booming.
Stock exchanges essentially provide the marketplace to ease the buying and selling of stocks among investors. Stock exchanges are regulated by government agencies, The Securities and Exchange Board of India (SEBI), that oversee the market to protect investors from financial fraud and to keep the exchange market functioning smoothly.
Although the vast majority of stocks are traded on exchanges, some stocks are traded over-the-counter (OTC), where buyers and sellers of stocks commonly trade through a dealer, who specifically deals with the stock. OTC stocks are stocks that do not meet the minimum price or other requirements for being listed on exchanges.
Here the role of Stock Market Players is very important, they include Investment Banks, Stock Brokers, and Investors. The performance of our stocks is shown by different Indexes such as NIFTY50, BSE SENSEX, etc. The two basic approaches to stock market investing are, Value Investing and Growth Investing.
Value Investing is a typical type where more focus is on avoiding risk than the growth of investment, although value investors do seek to buy stocks when they consider the stock price to be an undervalued bargain. Whereas, growth Investing is more of risk investing in young companies and investors seek out companies with exceptionally high growth potential, hoping to realize maximum appreciation in the share price.
Now coming to Asset Allocation, it is a kind of strategy to minimize the risk in investing. The Assets included here have three main categories, Equities, Fixed Income, and Cash & Equivalents, notably, anything besides these three is alternative assets. While deciding on investing, the factors are affected by asset allocation depending on Goals, Risk, and Time.
So now the question of how this works? Most times your Financial Advisor will advise you to reduce the volatility in your portfolios of investments and to diversify your investments in different classes. Therefore, asset allocation is popular in portfolio management because different asset classes will always provide different returns. There are considerable strategies in asset allocation depending on the age of the investor and the life-cycle of the funds.
As of now if you decide on investing following the above scenario, Investment Product Expertise comes into the picture. Here we will be seeing the assets of different classes have various products to manage. So, to meet our goals the refund should be as much as we thought of and so our expertise should have that value. There are various Banks and Finance experts to provide us these expert solutions on our product that we are liking to invest in.
Investing should be the path to a secure future in today’s world. The liabilities we have and the traditional asset we buy can’t give us the full return that we want. For example, buying an acre of land for Rs 5 Lakh can give us next year a maximum of Rs 6 Lakh but if we invest in portfolios with the right guidance and expertise in check, we can gain double what we invest in next year only! But this learning should be perfect given the accurate environment in the market.
So as Warren Buffett says "I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful."