Not investing your money is the biggest risk, here’s why
Updated: Feb 27, 2020
If you are anything like me, you will definitely nod in agreement when I talk about the sense of security a fat bank balance offers. I lived with this security blanket for years. But now, I feel like kicking myself. To avoid the risk of losing my money, I kept it in my bank at a measly 3% rate of interest when I could have easily more than doubled it. I now realise that avoiding investments to avoid risk put me at the biggest risk of not having enough for my needs in life.
All eggs in one basket is no good
Recent headlines say it all. If you think that letting your money sit in the bank is keeping it safe, think again. In case the bank goes down or faces any losses, it is liable for only ₹ 1,00,000 – meaning that irrespective of how much money you have in your account, the bank will return only ₹ 1,00,000. So that myth has now been debunked. The news reports about the depositors of PMC Bank losing their life savings in a scary dose of reality.
Numbers don’t lie
Coming back to why not investing is a bigger risk than investing, let us look at some numbers. I had been putting some money in mutual funds through SIPs for a very short amount of time – I think only about two years. This was from 2007 to 2009.
As disorganised as I was, I forgot all about it and it was only when I was going through a bunch of papers that I came across some statements from 2012. The amount in the statements was some ₹ 18,000. I called up the helpline number for the mutual fund and was surprised to learn that my money was now almost ₹ 50,000.
So in about 10 years, my money had grown exponentially. And this is money I had totally forgotten about. Now you know why I’m angry for letting money just sit in my savings account.
Long term investment allows you to reap benifits of the economy
We all have our dreams and ambitions. You have so many choices on where you can spend your money. Similarly investing in the right instruments that beat inflation is a way to participate in the economy and reap benefits from it.
If you are doing your civic duty with taxes, also take advantage and study the various investment options and choose one most suitable to you. Short of a magic genie it is the only way you can realise any of your life goals such as travel, higher education or home purchase.
Fixed Deposits don’t beat inflation
If you are thinking of fixed deposits as a safe, risk-free investment, remember inflation. The rate at which your FD grows matches the rate of inflation leading to a situation where your maturity amount will actually be worth less than what you invested.
Meaning if you invested ₹ 100 in FDs today, when it matures the value of the money at that time will be less than the value of the ₹ 100 today. If you are already in the tax bracket the value goes further down.
Risk is unavoidable
Risk is inherient in all actions in life and risk comes from not knowing what you are doing. So the best way to combat it is to learn and be informed. Too much information and financial jargon can be overwhelming. The Basis approach through content whether on app, website or discussions on our community, is to provide simple, relateable and actionable financial information. Take the the first step to start learning and take it from there.
Choose your investments with care
The rule of thumb to follow is to pick your investments with care. Mutual funds are a safe and easy way for beginners to start investing. With a diversified portfolio, you will generally manage to ride out any market upheavals. The very nature of mutual fund investments helps balance out the risk factors that are prevalent in any kind of investment.
The longer you keep your money in the fund, the greater the returns. One or two of the funds in which your money is put in by the fund manager may not perform to your expectation, but the others will balance out any loss.