How to invest wisely and avoid the debt trap

Mention the words stock markets and investing and many people tune out because they are intimidated by the very talk on finance. However, this is not the right response.

You cannot create wealth on your salary income alone.

This is because investing is the activity of putting your money into securities or assets using an investment framework, backed up with adequate risk management, supported by insight and research into the prospects of the company or the different assets you want to invest in.

Investing requires an investment philosophy — a set of guiding principles that provide you with direction and discipline, irrespective of whether the markets are racing high (bull phase) or are falling towards rock bottom (bear phase).

Newcomers to investing often make the mistake of behaving in a rash manner, throwing their money blindly into things they don’t understand.

This isn’t investing, its speculation which is more like gambling where you are relying on chance and luck.

Investing on the other hand cannot be left to chance.

It requires patience, especially for your investment thesis to mature, something speculators have little time or interest in.

Three reasons to invest. Long-term accumulation of wealth: Investing has proven to be the best way for the long-term accumulation of wealth.

Sure, there are risks associated with it.

But, if one takes only risks that are suitable to one’s stage in life and investment horizon, then investing provides a great way to take advantage of the compounding of capital over a long period of time.

Reasons to invest

Take advantage of compounding of capital: Compounding is the ability to earn a return in the current year on not only your principal amount, but also on the returns earned in the previous year.

Compounding is the process through which your money multiplies, and you can earn returns that can go towards meeting your various financial goals in life such as educating your children, or paying for their marriage, or buying a new house, or paying for your parents’ health care costs and so on.

Offset the damage from inflation: Additionally, it is only through investing that you can offset the damage that inflation wreaks on your personal finances.