India is amongst the country where people know the value of savings. We save a lot in comparison of other countries. Still when it comes to possess wealth we stand far behind. Earning, saving and wealth creation these are three different aspects of meeting our financial goals. Now question is what should be our financial goal. How we should decide that this particular level is our financial goal. Let us help you hear to decide and achieve that goal.
1) Wealth building is not equal to accumulation of money but to create new sources of income without any future action from your side: Well we have different concepts for financial security but in real world financial security means for what period of time you can manage your current lifestyle if you stop working right now. Achieving this level should be the goal of your wealth building.
2) Start buying income generating resources: Now you can understand. Wealth creation doesn’t mean to accumulate money but to create sources which can fetch you return when you don’t even interfere in their natural movement. For every expanse you make or will have to make to manage current lifestyle there must be an asset, here asset means a source which can fetch you earnings to meet those expanses.
Robert Kiyoski in his famous book ‘Rich dad Poor dad” makes it very simple that an asses is simply a resource which is going to fetch some cash flows in future.
3) Start from small savings: Always start from small savings. Generally we save after meeting our expanses but to maintain a strict discipline we should save first and then make out budget to meet all expanses in available sum.
4) Invest in real asset: In early stage of life we should try to accumulate these real assets which are going to fetch some risk free returns. Like stocks of good quality, Fix interest rate debentures, Tax free Bonds, Liquid funds with dividend option. Once you accumulate a decent sum you can put it in real estate options and can fetch some rent income and capital gains.
5) Hedge your investments with hedging products: What are these products? In case you have a heavy investment mutual funds and after that market is up and you are expecting it to go even higher but still confused because if it came down you will miss an opportunity to book decent profits. You can hedge this situation by buying put options representing the portfolio you have in your account. Likewise you can hedge all investments through some counter or opposite investments where the reaction of movement is sharper.
6) Be less excited: It may sound a little surprising but more excitement is dangerous for your investments. In equity market there will sharp movements every day in some scrip. Don’t get carried away with that. Most of the people making huge losses in market only because of this excitement of catching the sharp movements. Wealth is a long term phenomena and you can’t tame market ever.
7) Emotional control: What emotion will do with this wealth creation thing? Emotion is not only about love or friendship. It also includes our greed and laziness which force us to take unwise decision. I have seen many people suffer a loss and then they continue to suffer more losses just to recover that first one. Emotion attached with lost money never let them leave the speculation and they lose even more.
8) Profit is all about entry at low and exit at high: Correct timing is very important aspect of wealth building either you will suffer loss in every investment. But in real word people rely on past trends and are not ready to put any money in the fund or scrip which is at low level and they are unable to see huge profit in past returns.
9) Don’t expect past trends to repeat every time: Products rarely repeat their past trends. Take the latest example, return of last year for equity was almost 100% but in current year market is stagnant. While choosing your fund it is better to see past trend of longer period and read it with current scenario and decide with future expectation.
10) Control your greed: If you are earning in any investment, just book it don’t wait for a miracle. If you are losing hold and average.
11) Don’t go after tips: It’s the worst investment to buy any tips from so called experts. If someone is so sure of market they can put their own money. You will end up in losing a chunk of money. Keep patience and go for long term investments. Review your investments time to time and make changes according to changes in economy and long term trends. Never forget to take the services of professional advisor.
Let me sum up some basic rules for you
No risk no gain…high risk high gain but it may result in loss of your entire capital too
No one ever become a millionaire by speculation in shares. There are some fake stories in market, don’t get carried away by them
In case you make any loss. Forget it and leave don’t try again and again to recover your loss. It will result in more losses.
Give time some time. A correct timing is the most important aspect of investing.
Be consistent and disciplined in investment. SIP is one of the best products to keep discipline and consistency.
Try to start some SIP’s which will be deducted within one week of your date of credit of salary in account.
This way you will be able to save first and control expanses
Keep your time horizon at least one year for equity based products and for less a year time go with fixed income products.
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