||What is meant by Investing and how is it different from Savings?
||What is a Share?
||Should we invest in Stock Markets?
||What follow-up steps to take after investment in shares?
|What is meant by Investing and how is it different from Savings?
'Investing' means building up to meet future consumption demand with the intention of
making profits while 'Saving' is not consuming everything today and leaving something for
tomorrow. When we 'invest', we forego our present consumption or do it out of our surplus.
In other words, 'savings' again supports 'investment'. When you invest your savings it has
morphed into Risk Capital which can be eroded. Risk can be minimized by choosing to invest
in low risk investments. The risk associated with each investment changes with time, and
must be monitored carefully.
|What is a Share?
A share is a single unit of ownership in a company, mutual fund or limited partnership.
When you purchase shares, you become part owner of a company. As an owner, you are usually
entitled to voting rights and to a share of the company's profits, a portion of which are
distributed in the form of cash dividends. Dividends are not guaranteed. They may be
increased if the company performs well, but they may also be reduced or eliminated if the
company performs poorly.
|Should we invest in Stock Markets?
The answer to this question is a definite yes. Although past performance cannot
guarantee future market results, stocks historically have outperformed all other long-term
financial assets. It is the only financial asset that has significantly outpaced inflation
over time. The only important factor to be kept in mind is that investment should always
be made with an objective in mind and we should not be too greedy while investing.
|What follow-up steps to take after investment in shares?
It is necessary to review your financial position regularly, at least once a fortnight.
Re-evaluate your portfolio to find whether you are making the best of the money you save
and invest? Are you happy that you are getting the best possible return from them? Do they
fit in with your current "risk profile" - should you, if you are getting closer
to retirement, be thinking about reducing the level of risk in your portfolio of
investments or should you actually be thinking about taking a few more risks if you have
plenty of time in which to build up an investment?
Are your short-term investment giving you the desired rate of return or are you trapped
by buying the stock at its peak? Book losses on these shares and try to invest in shares
where you can make up for the losses.
In case of long term investment, track news on the stocks regularly. If there is a change
in business environment, management or future profitability, the valuation of stocks will
change accordingly, and hence the target price will also change.