Before we jump into the topic, let us first understand the importance of investing. Say, for example, you are 30 years old and you have INR 1 Cr in your bank account. This seems like a lot, right? But let me tell you that this 1 Cr won’t be worth the same 30 years down the line.

This is due to inflation.

Inflation means the value of money is decreasing over time. Say you have INR 100 today and the inflation rate is 6%, then next year this money will be able to purchase goods worth only INR 94. This INR 94 is the real value of money.

Now, let’s understand what will happen to your INR 1 Cr if the return on your savings account is 5% and the inflation rate is 6% 

The same INR 1 Cr today will be worth approximately INR 70 lacs after 30 years.

This is a reason why one needs to invest in asset classes that can beat inflation. One of the asset classes is equity which has given a return of 12-15% annually in the last few decades and it is expected to give more returns in the future.

Let’s understand how compounding works? I will give you two options:

Option 1: I will give you INR 0.01 on day 1 and double it for the next 29 days

Option 2: I will give you INR 10,000 for the next 30 days

Which one will you choose?

There’s a high probability that you will choose Option 2 because we think linearly. But you will be astonished to see the result.

At the end of 30 days, you will have INR 107 Cr in option 1 and INR 3 Lakhs in option 2. This is the power of compounding.

Let’s bust some of the myths that are passed on to us by our Chachas and Mamas

Myth 1 – People think the stock market is very risky: Very few people in India invest in stock markets as compared to other developed countries because they feel that the markets are risky.

Let’s look at the Sensex returns chart over the years: Sensex has increased from 1,000 points in 1990 to 60,000 points in 2022 which is a return of

60x in 32 years. There have been many hiccups like the 2008 global crisis and 2020 covid-19 but in the long run, Sensex has given good returns to its investors. So in the short run, the markets can be risky but they can fetch you good returns in the long run.

Myth 2 – You need a very strong knowledge base to do well in the markets: This is not true. In fact, people who use their common sense and are disciplined with their money make good money in the long run. On the other hand, people who are oversmart or try to overdo the market are the ones who lose money.

Let me tell you a short instance which is from the book “ Psychology of Money”.

It is a real story of two investors – Jesse Livermore and Grace Grooner. Jesse Livermore was a professional trader who had $100 Mn at the age of 30 but 4 years down the line he lost all his money as he incurred large losses in trade. So you see – Being wealthy and staying wealthy are two different things. Now let’s talk about Grace Grooner, she was an orphan and worked as a secretary all her life, leading a humble life. She made $7.2 Mn by investing a small amount of her savings in the stock market. From this example, we can understand that smart people do become wealthy but disciplined people stay wealthy.

So we recommend you invest 20% of your savings in markets and let the power of compounding work for you.

Myth 3 – Market participants often think that they can time the market:

We can see that investor returns are lower than fund returns because investors try to time the markets. Whereas fund managers don’t get carried away with their emotions and stay invested for long periods of time.

Myth 4 – Market participants think they can catch the bottom of the markets: They feel that they can buy at the bottom of the market and sell at the highest price. This is not the case, in fact, if they could do that they would have doubled their money in 5-7 years. Well, you will be astonished to know that none of the portfolios have been able to achieve this.

Myth 5 – Markets are only for big institutional investors: Even small investors can invest in markets and generate decent returns by investing regularly and staying invested for a long

period of time.