How can you say...Its a good investment.

Before writing about good investment, lets have a quick view about investment. Investment is nothing but money invested in any field, whether it’s financial stuffs (bonds, shares, treasury bills etc) (note-- please don’t bother much about these words... sooner or later you’ll come to know once you start investing), real estate or anything which add some rows into your asset column.  But the aim should be, “In the long run the asset column should start filling your pocket in addition to its net worth”. Let me explain it with an example.  

Suppose you have bought a piece of land worth 15lakhs. Now this will add an asset worth 15L as per current real estate condition. Now you can do so many things with your land.  Some of them are

1.  You can wait and watch, finally if you get a better deal you can sell it in 20L (say).  This option is good if you want to make quick money, but market sentiments should support you.

2.  You can use it for rental purpose by putting some more money for construction and then you can earn some decent amount per month. It’s a good option which takes care of your monthly expenses and in addition to that you’ll own that asset too.

Let’s get deeper into the first option (which is the best way to explain a good investment). Suppose you have waited for two years after purchasing the land. The key factor for good investment is  “Inflation”. Let’s say within two years of span inflation rises to 10 %. Now you need to do some calculations here. Net worth of 15L invested, will become 18.15L within two years by taking the rate of interest 10% compounded annually( which is nothing but inflation). If you didn’t understand, simply calculate compound interest with principle amount 15L, rate of interest 10% and no of years 2. You’ll get the same value as 18.15L.  But as per our assumption you have sold it for 20L which is more than the value calculated by taking inflation into consideration. This explains, you are in safe side and made a not good but the best investment.

What if you have sold it for 17L.. Though you have earned 2L in two years and as per your business budhhi you have made a good investment but you haven’t considered the market sentiments and as per investment logic you are in loss of 1.15L which you have not given through your pocket but your asset could have put more than this if you would have considered inflation.

I prefer second option because somehow it fulfills the definition of good investment and it has two benefits, first it will put some money on your pocket on monthly basis which you will get through rent and secondly you can sell this after five years or so in a decent amount by considering inflation as well as your total expenses including construction and maintenance etc.

so moral of the story, first of all start investing if you haven't and initially don't bother much about profit and loss but keep inflation factor in mind. Always go for long term investment and study the market, sooner you'll find your pocket in a positive side.