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In today’s world, especially in countries with chronic inflation, investment is not just a choice, but a real necessity.
Words such as capital, investor and investment were once considered heavy words and many people thought that these words had nothing to do with them and were only reserved for the rich class of society.
But today, with the development of different markets and the increasing growth of media and social networks, a significant part of the society has realized that investment is not tied to only one specific stratum, and other strata can also invest according to their financial ability.
Before talking more about investment and stating its needs and benefits, it is better to answer the question, what is investment and how is it different from savings?
What is investment?
In economics, investing means allocating financial resources to one or more assets with the hope that their value will increase in the future. In fact, when people buy physical assets such as land and gold or financial assets such as bonds and shares and wait for their price to increase in the future, they have made an investment.
Investments can be made in short-term, medium-term or long-term time horizons. The investment time horizon means that a person or an institution that has invested in one or more specific assets, expects to achieve the desired return from this investment within a period of time.
Is investment the same as savings?
Some people do not differentiate between investment and saving, while these two concepts have fundamental differences with each other. Saving means gradually setting aside amounts of money (usually in the form of bank deposits) with the purpose of purchasing goods or services in the future, as well as being prepared to pay for emergency expenses. People who save their money do not expect its value to increase; However, they may receive a small return in the form of bank interest. Meanwhile, in investment, increasing the value of assets is a basic goal and expectation.
Another fundamental difference between investment and savings is related to “risk”. Saving usually has very little risk, that is, it rarely happens that a part of the nominal value of the saved money is lost, but in the case of investment, as there is an expectation of higher returns, the possibility of losing part of the capital (primary income) due to a decrease The value of the purchased assets should not be ignored either.
What are the benefits of investing?
Now that the definition of investment and its differences with savings have been raised, the important question must also be answered, why do some people still prefer investment to savings despite the risk of investment being higher than savings? What benefits does investing bring to those who are willing to accept more risk?
Achieving financial goals and improving the economic quality of life with the help of returns from investment, avoiding inflation and solving financial concerns during retirement can be considered the most important benefits of investment; Benefits that, of course, depend on correct and principled investment.
In countries that suffer from chronic inflation, investment is considered a kind of necessity, because the prices of assets in these countries are constantly increasing, and people who do not invest and only save, will see a decrease in the real value of money and a decrease in power in the future. will be their own purchase.
Where is suitable for investment?
There are various options and markets for investment, the most important of which are real estate, gold, currency, fixed income bonds, and the stock market.
Each of these markets has its own advantages and disadvantages, and they differ from each other in terms of risk and return. On the other hand, investing in some markets, especially real estate, often requires a lot of capital, while there are markets in which it is possible to invest with small amounts.
For example, you can invest in Tehran Stock Exchange with only 500 thousand tomans. Interestingly, there is no limit of 500,000 tomans to buy shares in the form of an initial public offering, i.e. when a company’s shares are offered for the first time in the stock market, and investors can participate in the initial public offering with any amount.
Of course, the possibility of investing with small amounts is not the only advantage of the stock market compared to other markets. In the following, some of the most important advantages that have made the stock market more and more attractive to investors will be discussed.
Advantages of the stock market compared to other markets
According to official statistics, the stock market is considered to be the most profitable market in many countries, at least in the long term, and without a doubt, obtaining higher returns, if not the most important criterion for investors to choose the right market for investment, is at least one of their most important criteria.
Of course, in the world of investment, more returns are obtained in exchange for accepting more risk, and the stock market is no exception to this rule. But due to the variety of investment options in the stock market, the possibility of optimal risk management in this market is far more than in other markets. In addition, liquidity risk, which is one of the most important investment risks, is much lower in the stock market than in other markets, and investors easily liquidate their assets in most cases. Also, in the stock market, you can invest in a fixed income fund to minimize risk.
On the other hand, investing in the stock market is very simple and nowadays it is often done online. In terms of transparency, the stock market has a clear advantage over other markets. Information related to transactions as well as financial information of listed companies is available to everyone through official stock exchange systems and investors can use this information to make better decisions.