What is an Investment? The money you earn is partly spent and the rest saved for meeting future expenses. Instead of keeping the savings idle, you may like to use savings in order to get the return on it in the future. This is known as Investment.
One needs to invest to:
earn return on your idle resources
generate a specified sum of money for a specific goal in life
make a provision for an uncertain future
One of the important reasons why one needs to invest wisely is not only to meet the
Cost of Inflation but also to beat it. Inflation is the rate at which the cost of living increases. Inflation causes money to lose value because it will not allow you to buy the same amount of a good or a service in the future as it does now or did in the past. For example, if you buy a product worth $100 and the inflation rate is 6%. For the next year the purchase cost of the product would be $106. Consider if there was a 6% inflation rate for the next 20 years, a $ 100 purchase today would cost $ 321 in 20 years (cumulative). This is why it is important to consider inflation as a factor in any long-term investment strategy. The aim of investments should be to provide a return above the inflation rate to ensure that the investment does not decrease in value. For example, if the annual inflation rate is 6%, then the investment will need to earn more than 6% to ensure it increases in value. So be careful with the inflation and invest wisely.
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