Not everybody knows it, but bank savings, term deposits, bonds and shares are forms of investments as well. So that makes you and I, and any person who has a savings account with a bank, an investor. You may think that your savings account is only a safe way to store your money over a short period of time, but every time you make a deposit, you are actually investing. The interests the bank pays for your savings are the returns on you investments, again a fact that not everybody fully understands. Incidentally, the interests or ROI that you are earning out of your savings deposits are not very much, so from an investment point of view it is not the best option.
Term deposits with banks also pay interests but at a higher rate, so you will, in effect, get a higher ROI. The downside is that you will be lending your money to the bank for a longer period of at least six months or even years, during which you cannot use your money. In the event that the deposit terms allow you to withdraw money during the term of the deposit, your deposit will be earning a lower rate of interest.
If you have excess money and you don’t like bank savings because of the low interest rates, or term deposits because of the withdrawal restrictions, you can choose to invest in bonds. The interest is higher and you can sell your bond at any time. The unknown factor is the credibility of the bond issuer (if not the government), and the fluctuating price of bonds. In the matter of shares, you buy a small ownership in a company and expect to share in the profits in the form of dividends. You can sell your shares if the price goes up and earn a profit, although prices can also fall down in value. Real estate property earns income and increase in value, and so are also considered as investments.
So, how vital are investments in our way of life? Perhaps it is more appropriate to ask what the importance of investors is. If practically everybody who has a bank savings or time deposits or counts bonds, shares and property as among their assets are investors, and that means a good number of the population, then the importance of investors cannot be underestimated. It would be hard to imagine a world without investors if the investors comprise the greater number of the people.
Investments are crucial to the success of a business because it is a source of much needed capital. A businessman will need capital if he wants to open a new business, or if he wants to expand his business to the next level. In fact, it will determine to a large extent the success or failure of a business enterprise, or whether or not the business will reach its full potential. Investments will be even more important if provided by investors who have a successful track record and can offer plenty of sound advice, experience and business expertise. These investors would want to protect their financial interests and secure the returns on their investments, and thus are interested in the success of the business which will be your success too. The willingness of respected investors to invest in your business also gives the signal that your business venture is a good investment opportunity and opens the way for more investors to come in. Investors therefore are hugely important and pivotal in the world of business and their absence can mean the regression of all economic activity.
In a larger sense, investors not only provide fresh and additional capital, but are also carriers of technology and pave the way for the opening of new markets. More capital investments mean more business opportunities which will create more jobs. With a larger segment of the population having jobs, the consumer base will be much larger and the purchasing power of consumers will be that much higher, and consequently the demand. The high demand for goods and services will in turn stimulate growth in the country’s economy. By implication, taking away the investors will set the stage for economic recession.
Talking of investors, why do people invest, or in another context, why should people invest? The main reason is to make some money and provide for the future in the long term. People at some point in time will stop working for a living and investing is one good way of preparing for that eventuality. Instead of working to earn a living, your investment will do the working for you. That will happen when your money earns interest or when your investment appreciates in value. On the other hand, your money will be unproductive if you keep it under the bed. In fact, the sooner you invest, the bigger will be the opportunity for your investment to earn money and/or grow in value.
The fact of the matter is that a large number of people knowingly or unknowingly are investors and investors collectively provide capital for industry and fuels the economy – thus ensuring the survival of a nation. The bottom line therefore is that life would be difficult to contemplate without the presence of investors.