[Part 4 of 5] The Risk of Not Investing (from Edelweiss.in)
~ Friday, December 2, 2022 Blog Post ~
Risks and investments go hand-in-hand. Every investment, irrespective of its nature, carries an element of risk. Sometimes, this risk prevents individuals from not making any investment at all. However, do you know that not investing poses an even greater risk than investing? There are several pitfalls of not investing, and this article will dig deep into them. Let’s begin.
a. Not Able to Address Life Goals
The simplest reason as to why we invest our money is to address our life goals. Be it short, medium or long-term goals, the primary objective of investing is to build wealth and corpus for them. However, if you don’t invest, you will fail to address your life goals.
Every goal, irrespective of its nature, warrants a sum of money. This is possible only through prudent investments via which you put your money to good effect. In a nutshell, if you want to realise your life goals and accomplish them with ease, you need to invest.
b. Allowing Inflation to Erode the Value of Money
Inflation is perhaps the biggest monster to wealth creation that has a decompounding effect on money. In other words, it erodes the value of money with time. The only way to combat it is to invest in inflation-beating instruments such as equities.
You must have heard from your parents or grandparents as to how many things they could buy during their times with Rs. 50 or 100. However, today, things are different due to inflation that can deplete your savings in no time. However, if you invest your money in inflation-beating instruments such as equity, either through stocks or mutual funds, you can effectively counter inflation.
To secure long-term goals such as retirement and ensure you don’t prey to the spectre of old-age poverty, it’s imperative for you to invest in an asset class such as equity.
c. Miss Out on the Power of Compounding
Hailed as the eighth wonder of the world, compounding has a multiplier effect on wealth. Have you ever thought about how a SIP of Rs. 5000 per month in an equity fund offering annualised returns of 10% for a period of 15 years can help you garner a corpus of above Rs. 20 lakhs. Well, that’s the power of compounding.
Thus, if you shy away from investing, you will lose out on the compounding benefit. As a result, you will miss out on the chance to grow your money and enhance your riches. At the same time, there can be significant shortfall in the desired corpus for a particular goal.
d. Robbing the Chance From Your Money to Grow
Keeping money in your almirah robs the chance for it to grow to address different needs. Just like stock markets needs are never linear, so is life’s. There could be a sudden emergency coming your way. If you don’t invest your money in instruments to build a contingency corpus, then you will have no space to accommodate this sudden requirement.
While investing your money in liquid funds or bank fixed deposits can help you be ready for an emergency, doing so in equities can help it to grow with time.
To Conclude
As evident, the risk of not investing far outweighs the risks associated with investing. Hence, you must invest your money in well-regulated financial instruments depending on your goals and risk appetite. Do monitor at regular intervals and make changes as desired.
Source: https://www.edelweiss.in/insight/today-s-perspective-1/the-inherent-risk-of-not-investing-b192bb
