Why invest?

Why do you invest? The usual answer is ‘to make more money’. That seems quite obvious doesn’t it? But is it?

Suppose you have saved 20 lacs for a Honda City. But, then you decide to delay consumption and instead invest the money. The money has grown to 40 lacs in 5 years. Technically a good investment?

Suppose you have the following three scenarios play out in 5 years.

1.?????The cost of a new Honda City in 2028 is now 50 lacs.

2.?????The cost of a new Honda City in 2028 is now 40 lacs.

3.?????The cost of a new Honda City in 2028 is now 30 lacs.

Under which of the following cases has your investment been a good investment?

We need to be more nuanced in our approach to investments. It’s not simply about making money. You have made money in the above example but you would be worse off in scenario 1 and barely break even in scenario 2. It is only in scenario 3 that this can be considered a good investment.

We will therefore need to update our answer for why do you invest. You invest to?‘increase your purchasing power over time’.