Why is there always a juggling of thoughts between whether we need to save our hard-earned money in banks or invest in stocks?. Yes, there is always this confusion for the common lads on saving money or investing it with certain risk without any guaranteed returns. We must know there's always only reward with risk, but this risk is not a vague method.
Ever wondered where your portion of savings in banks are served for, then it's time. Banks inherit money in two ways, one is commercial banking & other in investment banking. Banking institutions invest a certain portion of their capital in the stock market facilitating things like Initial Public Offering (IPO), Debt Offerings, Bonds etc.,
Of course we need safe savings on our income for the critical situation but savings more than emergency funds only lead us into reduced value of our money over a period of time due to factors like increasing inflations and living cost, medical needs, transport costs, increase in price of raw material goods. So the traditional method of saving money in banks, whether as FDs or RDs or Bonds or by purchasing gold.
Let us just compare the two scenarios of a person who has just opted to save his money on equal splits both in a bank as well as equity market on a regular basis and we shall see the details on a brief note:
The above data is comparative look at the past five years of total returns produced from the bank vs equity market.
Returns shown on the chart are reflected if you had done regular savings or investment of Rs.1000 regularly on monthly basis over a period of 5yrs. These are the real returns in past 2018-2023 results before covid-19 and post pandemic.
Methods of Investing:
Individual Stock Purchases: Investors can buy shares of individual companies they believe have strong growth potential. This approach involves conducting thorough research on specific companies, analyzing their financial health, competitive position, and industry trends before making investment decisions.
Exchange-Traded Funds (ETFs): ETFs are investment funds that hold a diversified portfolio of stocks or other assets. They are traded on stock exchanges like individual stocks and provide instant diversification. Investors can choose ETFs that align with their investment goals and risk tolerance, such as sector-specific ETFs or index-tracking ETFs.
Mutual Funds: Mutual funds pool money from multiple investors to invest in a diversified portfolio of stocks and/or bonds. Professional fund managers make investment decisions on behalf of fund shareholders. There are various types of mutual funds, including equity funds, bond funds, and balanced funds.
Index Funds: Index funds are a type of mutual fund or ETF that aim to replicate the performance of a specific stock market index, such as the S&P 500. They offer broad market exposure at a lower cost compared to actively managed funds.
Dividend Investing: Some investors focus on building a portfolio of stocks that pay regular dividends. These dividends can provide a steady income stream, and dividend reinvestment plans (DRIPs) allow investors to automatically reinvest dividends to buy more shares.
Value Investing: Value investors look for stocks that they believe are undervalued compared to their intrinsic worth. This approach often involves analyzing financial statements and fundamentals to find stocks trading at a discount.
Growth Investing: Growth investors seek companies with the potential for rapid earnings growth. They typically prioritize companies in expanding industries and may be less concerned with current valuation metrics.
Technical Analysis: Technical analysts use charts and historical price data to make investment decisions. They look for patterns and trends in stock prices to predict future price movements.
Day Trading and Swing Trading: These strategies involve buying and selling stocks within short timeframes, sometimes even within the same trading day (day trading). It's a highly speculative and risky approach that requires a deep understanding of market dynamics.
Long-Term Investing: A passive approach involves buying and holding stocks for an extended period, often several years or even decades. This strategy aims to benefit from the compounding of returns over time and typically has a lower level of active trading.
Dollar-Cost Averaging (DCA): DCA involves investing a fixed amount of money at regular intervals, regardless of market conditions. This strategy can help reduce the impact of market volatility on your investments.
Sector and Industry Focus: Some investors concentrate their portfolios on specific sectors or industries they believe will outperform the broader market.
Dividend Growth Investing: This strategy focuses on companies with a history of consistently increasing their dividends over time, aiming to benefit from both income and capital appreciation.
Global and International Investing: Diversify your portfolio by investing in stocks from markets outside your home country. This can provide exposure to different economies and industries.
Options and Derivatives: Advanced investors may use options and derivatives for speculative purposes or to hedge against potential losses in their stock portfolios.
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