Often readers ask us how we can build wealth and preserve it for a long time.
Based on their suggestion, here we are with a new topic that would help you understand what needs to be done for wealth creation and preservation.
Wealth creation and preservation may seem complicated. But it isn’t.
A simple mantra to follow is – Invest, Invest, and Invest!
Things we would want to cover in this article are –
- Where investors go wrong
- An early start, disciplined approach, and asset allocation
- Role of robo-advisors
Without wasting much time, let’s jump directly to the fascinating topic for the day.
Ace investor Buffet says:
Wealth creation and preservation is similar. Let us look how.
You have a sapling; you plant it early, you water it regularly, you put in fertilizer, you put in pesticides and other regulators whenever the season is terrible, and gradually you see the plant growing.
The growth of the plant for the first five years may not be visible, but after five years, the sapling of yesteryear turns to a plant and then to a tree in no time. What is the learning?
Only three things – Start early, be disciplined, and allocate in the right way m
Let us now see the mantra in greater detail.
When you start on a mission to create wealth and preserve it for long, you need to understand that certain time-tested principles need to be adhered.
Some of the principles are as follows:
Its better late than never, but sooner the better
“Early to bed and early to rise makes a man healthy, wealthy and wise.”
Oh, please don’t panic! we are not asking you to learn nursery rhymes here.
We are just trying to show a proverb that tells you the benefit of starting early.
In the investing world also, you need to start early.
The belief that only rich people can invest to accumulate a corpus is not true. The fact is that the sooner you start, the more you will have.
For example – If you save Rs 10,000 per month that fetches you 15% on an average, you can build a corpus of Rs 7 crores in a span of 30 years.
Now, reduce your horizon to 10 years or 20 years, you will only make Rs 28 lakhs and Rs 1.5 crores respectively.
What did you notice?
If you hold for 10 more years, your portfolio grows nearly 5 times.
This growth is the power of compounding.
So, start early to leverage the power of compounding irrespective of the amount you have for investing.
Avoid behavioral error, focus on long-term and remain disciplined
Often it is seen that investors tend to get irritated with the fact that their investments are not showing any magic growth in the first five years period.
This development results in investors pulling out money. And this approach should be avoided. You need to focus on your goal, and you should be disciplined with your plan.
Markets are bound to correct themselves, don’t get disheartened, but utilize the moments for top-up with a thought process that says – “this too shall pass.”
Capital markets reward long-term investors – one who stick to fundamental and his/her thesis and believe strongly in it. Famous value investor Benjamin Graham said – “An investor’s chief problem and even his worst enemy is likely to be himself.”
Thus, try to avoid behavioral mistake and don’t get affected by ups and downs.
Continue with your investments even if the market is at an all-time low and use these moments as opportunities to add rather than exit and you shall win eventually.
Now, this brings us to the final principle.
Allocate as per risk appetite, goal and horizon
With time your age increases and thus your risk appetite reduces.
Now, equity is riskier than debt. Therefore, always look out for portfolio rebalancing so that it reflects your conviction at all times as assessed by your risk appetite, goal, and horizon.
If you have a 100% equity portfolio when you start at 25, try to reduce the equity exposure gradually after 45 years of age. This method lets you protect your capital from any adverse downward movement.
How do you get to do all this?
Very simple, you can use services from robo-advisor platforms such as Groww, that help you select the right fund, based on your risk appetite and also allows the constant monitoring of your portfolio.
All you need to do is sign-up and get going!
Disclaimer: The views expressed in this post are that of the author and not those of Groww