What is Investment and How to Start Systematic Investment Plan

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Investors must evaluate their investment objectives and ensure that they align with the objectives of various assets. They must now choose the alternative that best matches their needs. Let us understand what is an investment meaning, how investment works, where to invest money along with the examples of investment in this topic.

Following an investment, it is the investor’s responsibility to review the portfolio on a regular basis and, if necessary, rebalance the assets. If you don’t have the time or capacity to handle it on your own, you may always seek guidance from a financial specialist. A financial advisor’s services include assisting a client in selecting assets that best meet their needs and evaluating those investments on a regular basis. Their outstanding job warrants a low charge.

What is an Investment Meaning?

Investment refers to investing money or purchase of goods or assets with the intension of making profit in the long run. For example: Investing money into bank fixed deposit, buying real estate assets, purchasing gold, Investing in financial assets like stocks, bonds, futures, currency, etc and selling on the future date with the hope of appreciation and making profit out of it.

Investment vs Savings

Saving entails holding cash or depositing it in a very safe account. To put it another way, it is saving money rather than spending it immediately. Money can be kept in a savings account, cash, or liquid mutual funds, among other places. As a result, there should be no profits or returns. Its value will also remain unaffected. As a result, saving is frequently employed to achieve minor financial objectives. In an emergency, savings are tremendously useful. It is straightforward to gain access to one’s money.

Savings are low-risk or risk-free investments. The danger of losing money is extremely low when compared to other investment products. Interest rates on savings accounts are often lower than those on other products. As a result, returns on savings are exceedingly low, if not nonexistent. As a result, there should be no profits or returns. Its value will also remain unaffected. As a result, saving is frequently employed to achieve minor financial objectives. Savings are incredibly beneficial in an emergency.

On the other hand, investment goes without saying that everyone wants to be financially secure. What people achieve is totally decided by their own choices. This can be accomplished through investing or saving. Investing is the process of purchasing stocks, mutual funds, bonds, real estate, and other assets in the aim of profiting later.

Investing is a long-term activity that can help you achieve your financial objectives. The amount of money available depends on the sort of investments undertaken. Few investments have a time limit, and some can be redeemed immediately. Investing comes with its own set of risks. However, their influence will fade with time. Investing pays out handsomely, and one may achieve their financial goals swiftly.

Where to Invest Money

There are different ways for investing like bank fixed deposit, real estate, gold, currency, stock market, bonds, etc. Before you park your in any of the market one should perform research to analyze returns with time duration based on the past performance and conclude whether your investment opportunities is going to fulfil your retirement expenses. We will get into dept to understand best ways to invest for retirement.

Let us take an illustration to understand with the basic concept of investment. Let us assume Mr. Trader’s current monthly income and expenses report. We will take this portfolio in our example to understand the investment concepts better.

Income:Rs.75,000/-(approx. around $1000)
Expenses Summary:
1. Home Loan RepaymentRs.25,000/-(approx. 39% of Salary Income)
2. House Hold ExpensesRs.20,000/-(Includes Food, Transport, Shopping, Medical, etc)
3. Miscellaneous ExpensesRs:10,000/-(Including Society Maintenance and Electricity Bill)
Total Monthly Savings:Rs: 20,000/-Calculated as: Income – Expenses

(Lets ignore the income tax fact for the time)

Example of Savings

Investors must evaluate their investment objectives and ensure that they align with the objectives of various assets. They must now choose the alternative that best matches their needs. Let us understand what is an investment meaning, how investment works, where to invest money along with the examples of investment in this topic.

Following an investment, it is the investor’s responsibility to review the portfolio on a regular basis and, if necessary, rebalance the assets. If you don’t have the time or capacity to handle it on your own, you may always seek guidance from a financial specialist. A financial advisor’s services include assisting a client in selecting assets that best meet their needs and evaluating those investments on a regular basis. Their outstanding job warrants a low charge.

Example of Savings (Portfolio Scenario No.1)

Let us calculate the retirement and financial planning with few simple assumptions:

  • Salary hike is expected to growth at 10 percent per annum year on year.
  • The cost of living is likely to go up at inflation rate i.e. by 8% year after year.
  • Mr. Trader is currently 30 years of age and Mr. Trader map to retire at the age of 50. Which conclude only 20 years for retirement planner.
  • You don’t have it in mind for occupation after you retire and your expenses are fixed and don’t forecast any other expenditure.
  • Going by these assumptions, here is how the cash balance will look like in 20 years as per Table
Years Salary Income p.a.Expenses Y-o-YNet Cash Savings
17,80,0006,60,0001,20,000
28,58,0007,12,8001,45,200
39,43,8007,69,8241,73,976
410,38,1808,31,4102,06,770
511,41,9988,97,9232,44,075
612,56,1989,69,7572,86,441
713,81,81810,47,3373,34,481
815,19,99911,31,1243,88,875
916,71,99912,21,6144,50,385
1018,39,19913,19,3435,19,856
1120,23,11914,24,8905,98,229
1222,25,43115,38,8826,86,549
1324,47,97416,61,9927,85,982
1426,92,77217,94,9528,97,820
1529,62,04919,38,54810,23,501
1632,58,25420,93,63211,64,622
1735,84,07922,61,12213,22,957
1839,42,48724,42,01215,00,475
1943,36,73626,37,37316,99,363
2047,70,40928,48,36319,22,046
Net Cash
Balance at
Retirement Age:
1,44,71,603

Above calculation results are quite shocking:

  • After 20 years you have accumulated around Rs.1,44,71,603/- (approx. around $2,22,640).
  • Considering your expenses are same after retirement and expenses will continue to grow at 8%. It’s an adequate amount to keep you alive for about 4 years post retirement life but after 4 year onwards you will be into financial crisis. How would you manage year on year after 4 year? Is there any way to make better investment plans good enough for post retirement?

Example of Investment (Portfolio Scenario No.2)

Let us understand by above scenario with additional two simple assumptions:

  • You have managed your fund and succeed in acquiring 15% returns year on year.
  • After 20 years, you do not have to pay home loan further. You expenses are reduced by Rs.3,00,000/- (Rs.25,000 * 12 Months) henceforth.
Years Salary Income Cash Savings Cash Y-o-Y 15% Return Net Balance
17,80,0001,20,0001,20,00018,0001,38,000
28,58,0001,45,2002,65,20039,7801,84,980
39,43,8001,73,9764,39,17665,8762,39,852
410,38,1802,06,7706,45,94696,8923,03,662
511,41,9982,44,0758,90,0211,33,5033,77,578
612,56,1982,86,44111,76,4631,76,4694,62,911
713,81,8183,34,48115,10,9432,26,6415,61,122
815,19,9993,88,87518,99,8182,84,9736,73,848
916,71,9994,50,38523,50,2043,52,5318,02,916
1018,39,1995,19,85628,70,0604,30,5099,50,365
1120,23,1195,98,22934,68,2895,20,24311,18,472
1222,25,4316,86,54941,54,8386,23,22613,09,775
1324,47,9747,85,98249,40,8207,41,12315,27,105
1426,92,7728,97,82058,38,6408,75,79617,73,616
1529,62,04910,23,50168,62,14110,29,32120,52,822
1632,58,25411,64,62280,26,76212,04,01423,68,636
1735,84,07913,22,95793,49,71914,02,45827,25,415
1839,42,48715,00,4751,08,50,19416,27,52931,28,004
1943,36,73616,99,3631,25,49,55718,82,43435,81,796
2047,70,40919,22,0461,44,71,60321,70,74040,92,787
Net Cash
Balance at
Retirement Age:
2,83,73,662

Above calculation results are quite joyful:

  • After 20 years you have accumulated around Rs.2,83,73,662/- (approx. around $4,36,517).
  • You have developed the skills to invest the fund and get 15% returns even after post retirement.
  • Considering your fixed expenses are same after retirement and expenses will continue to grow at 8%. It’s an ample amount of money to keep you alive till 21 years post retirement life. Which is good enough to live your life happily even after retirement.

Having figured out, how important is to invest your fund and what kind of returns one should expect by investment to live your life happily even after retirement. Now let us understand 3 things, Why, Where and How to select the asset class that outfit your individual risk and return outlook. Investment assets are characteristics based on risk and return. The following are some of the popular type of investments one should go thru…

  • Fixed income deposits.
  • Stocks / Equities
  • Commodities Futures
  • Bonds or Deposit Certificates (CDs)
  • Real Estate
  • Cryptocurrencies and more.

Conclusion

When making financial decisions, consider how much money you want to make back. When you invest, you purchase financial products such as bonds, stocks, and real estate. After reading this article, you should have a better understanding of what is an investment definition, where to invest your money with the examples of investment.

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