As we have already seen, investment needs to be understood as distinct from savings. While savings are mere parking of funds to earn a small interest, it is investing that helps you grow your money. There are 4 broad reasons why one must invest one’s money. Investing helps you to grow your wealth gradually over a period of time. Earning 15% per year may sound quite normal But if you consider 15% annual return over a period of 25 years with all the returns getting reinvested, then the actual corpus can grow up to a phenomenally large sum. Even within the ambit of investments, it is equity and mutual funds that actually help you grow wealth over a period of time. Investing helps you earn higher returns. This is typical of equities investing. Over a shorter period of time, equities may or may not outperform other asset classes. But if you look at equities from a 5 years perspective, they will typically outperform other asset classes. Very importantly, you need money for your long-term goals.

What exactly are long-term goals? Planning for your retirement, planning for your child’s marriage or for her education all come under long-term goals. Just keeping your savings in a bank account will not help you meet these long-term goals. You need your money to generate returns and these returns need to generate additional returns. It is only through investing that you can make money work for you.