Everyone has dreams…. A dream to live in a plush house, to provide best education to children, to enjoy good things in life, to go for a vacation abroad, to have sufficient funds and live a leisurely life after retirement and be financially healthy so that we can do things we love to do. Everyone has right and potential to dream and should ensure that dreams come true.
The only one way to achieve this and more is to create wealth by investing properly at the right time. Proper investment has a secret formula of having the right information, planning and making good choices. Wealth creation aims at maximising returns and at the same time minimising risks and volatility associated with our investments.
Here we have to follow a systematic approach and judicious principles that we often hear and know but forget to implement i.e. prepare budget to save, save and invest regularly, invest for long-term and control debt. It’s not only necessary to have savings from our income by controlling expenditure but also to invest the savings appropriately for multiplication.
The need of the hour is to invest regularly because of many reasons. Firstly Inflation is eating away our returns. Returns may look healthy on paper but actually capital may be eroding because of inflation. Secondly since life is going to be longer thanks to advancements in medicine, we should have a lot more savings to plan and enjoy our extra twilight years of our life.
Thirdly wealth creation is required to enjoy luxuries of life and maintain good standard of living. Fourthly our families are getting nuclear and the security provided by the joint family system is fading. Hence more wealth is needed to take of ourselves. Lastly we must create wealth to meet the larger expenses in life most of which can be planned and will have to be incurred.
Key stones for investing to create wealth:
Start investing early: If we start investing early, we will have more number of years for making investments and this can help to build bigger amount of wealth.
Benefit from compounding: Reinvestment of income from investment enables to grow the principal amount in geometric proportion gradually resulting in higher returns in the long-term.
Stay for long-term: Long-term investing helps to tide over short-term volatilities and to avoid mistakes such as timing the market, picking bad stocks and investing on borrowed money.
Invest systematically and consistently: Systematic Investment Plan is the best method for investment within the reach of an average person with low income or tight budget.
Stay focused on goals: The cardinal rule is to stay focused, invest regularly even a reasonably small but fixed amount and maintain discipline in investing pattern.
Diversify across asset classes: Diversification across asset classes such as equity, debt, real estate, gold and fixed income investments is a way to reduce risk profile of our portfolio.
Manage assets and control liabilities: It’s important to maximise wealth creating assets and minimise liabilities. Total wealth is excess of wealth creating assets over liabilities.
Plan for taxes: Taxes cannot be evaded but with a little bit of smart and prudent planning, we can ensure that we need to pay lesser amount of tax or may be even no tax at all.
Thumb rules for investment and wealth creation to convert dreams into reality:
• Save at least 20% of income. Increase savings as income increases.
• Have at least six months of living expenses in an emergency fund to meet any emergencies.
• Get insured worth at least 10 times of annual income.
• 100 minus age is the percentage of portfolio that should be in equities and the rest in other asset classes.
• Start investing for retirement corpus at an early age to get the benefit of compounding for longer period.
• Start tax planning from the beginning of the financial year to avoid investment in wrong instruments later.
• Invest in such products that can help beat inflation and give good real return.