How to Get Rich By Investing?
Investing is one of the most powerful ways to achieve wealth
and financial freedom. But it can also be a daunting task for those who are new
to investing.
In this article, we will focus on three main pillars in
Investing. also, the ins and outs of investing so that you can make informed
decisions and get the most out of your investments.
There are three things are essential to have success in
Investing
- Money
- Return
- Time
Money
What is the importance of Money in Investing? You can’t make
money without having money for investing, you can have invested your saved
money, Lets understand if you have saving of Rs 100 you can at least start with
Rs 10 in direct stocks, where you can understand business easily. Or Indirect
equity by way of mutual funds. Start a habit of saving money from initial days
of your working. Start small, build saving, and as and when opportunity arise you
can invest portion of your saving. Don’t take all of your saving. Start with Rs
2 to 3 From Rs 10, which you are willing to invest in equity from your total
saving of Rs 100.
Start educating yourself from day one, if you don’t have
money, then also build knowledge regarding Investing, Read Books, take help
from your friends. How they invest? When you get basic knowledge, start again
with Sector analysis, company analysis, valuation, Behavioral finance and
other stuff.
Money is a source of capital for acquiring assets, as stocks
are assets. More the money more is the assets, its that simple. Money acts as a
risk management tool for your investing journey, never invest all your money,
always have some spare cash in hand. Whenever opportunity arise, grab it. Market
will give you ample opportunities.
Without money you cant become successful in investing, you
can start with small amount, feel the market, and most important observe your psychology
when you stay invested. It’s a critical and most important part. Because psychology
plays important role in successful investing.
More money can earn more money from same stock, because your
quantity have bigger Impact on your profits.
More money have few benefits.
Greater Position Size: Your position size (the number
of shares you possess) grows when your investment in a stock rises. The bigger
position size means that the absolute value of your gains will be higher when
the stock price rises.
Leveraging Compound Growth: With greater starting
investments, the notion of compounding performs better. Your benefits are
stronger both in absolute terms and in terms of how they will affect future
growth.
Opportunities for diversification: If you have more
money to invest, you can spread your investments among a variety of equities or
other financial instruments. Diversification can aid in risk distribution and
possibly improve overall results.
Reduced Impact of Fees: Many investment platforms
impose fees that are calculated as a percentage of the amount you invest. The
percentage of your investment that these fees represent as a whole decreases as
you invest more money.
Higher Dividend Potential: If the stock pays dividends, investing more capital could result in higher dividend payments, which would boost your overall profits.
Return
Returns are of two types, Linear return and exponential
return
Lets see what is linear return. The growth or performance of
an investment over time can be determined using the linear return, sometimes
referred to as the arithmetic return or simple return. It indicates the annual
gain or loss of an investment on average, without taking the compounding impact
into consideration.
The value of an investment that increases over time as
returns are reinvested is referred to as an exponential return, also known as a
compound return. It considers the compounding effect, in which not only does
the initial investment provide returns, but those returns generate more gains
in succeeding periods. The value of the investment may increase exponentially
as a result of this compounding effect.
An investment's growth potential is better reflected by an
exponential return, particularly over extended periods where the compounding
effect has a significant influence. It takes into consideration the fact that
an investment's returns fuel growth, which eventually accelerates growth.
As Einstein famously said “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn't … pays it.
In investing, you can get benefit of exponential returns. By
reinvesting the dividend you receive. And the amount companies kept of
reinvestment as “Retained Earnings” they earn more return on retained earnings,
so your overall return becomes compound returns
In investing, compounding returns-driven exponential growth
has the potential to produce large long-term wealth creation.
Time in Investing is important factor, longer the time
greater the returns, shorter the time lesser the returns. That’s why we promote
long term investing, by having more time you can give compounding effect to
your investment.
Its one of the short article on essential elements to gave
success in Investing. We will cover more in upcoming articles. I can write more
on time and all three elements, but it will be huge reading exercise, as and
when we write, we will clear more concept with example. Its an introductory How
to get rich by Investing?
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