Question

250 words

What comes to your mind when you hear the word ‘investment’? How important is it to invest? Do you think you’ll have a lot of investment when you’re older?

Answer 1

Investment gives sense that, something (in money terms) imparted today for getting better (return in) value. Investment ensures the safe future of the investors. Future goals can be accomplished easily if investment is done on regular intervals. Investment done on regular intervals is called saving. Investment becomes more powerful when it is done consistently.

Investment is important to attain any future financial goals. The value of money keeps decreasing with time due to inflation. Generally, the power of money to buy something today is always higher than to buy something in future with same amount hence, one should invest in such a manner that it doesn’t loses its affordability in future. The future value of the prices grows with some rate and your investment should ensure that minimum rate. If investment could not earn the minimum inflation or target rate then it is not worthy. We should always look for an opportunity which can exceed the targeted inflation or growth rate. For an example: A rice bag $100 today is going to be $105 in one year then your $100 should earn at least $5 or 5% of $100 (in one year) to stand against rise in price of rice bag. If your investment earns 6% better, if 7% even better hence, investment in right instrument matters a lot.

Investment should be done for longer duration so that investment can get compounding growth. Investment done for shorter period would not give high compounding effect hence, investment should be done in early age. Investment done in older age will not be that impactful as same investment done in early ages.

Power of compounding with examples:

Case 1: Present Value = $1000; Interest rate = 8%; Years of investment = 15; Future Value =?

Future Value = Present Value x (1+Interest Rate) ^Years

Future Value = 1000 x (1+8%)^15

Future Value = $3,172

Case 2: Present Value = $1000; Interest rate = 8%; Years of investment = 35; Future Value = ?

Future Value = Present Value x (1+Interest Rate) ^Years

Future Value = 1000 x (1+8%)^35

Future Value = $14,785

From above it is very clearly observable that if we increase the investment terms for more number of years then it gives better numbers due to compounding effect.

Hence, investment done in old age will not yield much fruit than done in young age.