Long term wealth creation? What is that? Do you hear the term for the first time or you are familiar with the term but avoid making life easier. In this article I will try to explain about long term wealth creation and how is that possible by following few golden rules of investment and with better understanding.
What is long term wealth creation?
Creating a corpus amount for our retired life is a mandatory financial planning one have to do. Most people are working in private firms and in future even Govt. will also not provide any pension. So one have to save enough amount for your retire life so that he/she can maintain the lifestyle as it is. But creation of corpus amount is not a joke. One need to plan for that properly and invest in such products where return can beat inflation after 20-30 years from now. Only investment knowledge and planning is not enough, long term wealth creation begins with immediate action and patience. Also you have to modify your lifestyle to reduce your unnecessary expenditure and save more.
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Tips for long term wealth creation and become Rich
Let’s talk about the best ways to plan for long term wealth creation and make our retired life tension free.
1) Invest via Equity and Mutual Fund way
Over the period of time it has proved that stock market returns always beat the inflation. In fact for a longer period of 15+ years one can get 14-16% return. Where the traditional investment products like bank FDs, PPF, NSC, RDs hardly able to beat inflation. If you have tracked inflation data in past couple of years, you would have seen that it constantly increasing at rate of 6-8% / year. In that case a Recurring deposit or Bank FDs which return 8-9% on investment (can be less after income tax deduction if eligible) can hardly able to keep the investment as per current value. So best way is to invest in Mutual funds via SIP way. This is a must step for long term wealth creation. A monthly investment of Rs 5,000 via SIP for a period of 15 years can give you a return of around 33 lakh (considering 15% return on long term).
2) Invest for the longest time frame and forget about that money…:)
To get a very good return on investment one has to invest the money for a longer period of time. If you are impatient and can’t think beyond 3-4 year then you have to start thinking on this. In any investment product if you invest regularly for more than 15+ years you will get very good return. And when we are talking about long term wealth creation this could be even more than 20-25 years. So plan your current financial life properly and start keeping money aside for your life after 25+ years. Don’t forget that there is no such scheme which has maturity period of 20 years. Periodically you have to re-invest the matured investments further till your target year.
3) Time to taste all flavors, diversification of portfolio is a must
Diversification of portfolio is a term mostly used by every financial planner. You should not put your entire investment in one direction. As per your knowledge and understanding distribute your money in various financial products (Shares, Mutual Funds, bonds, PPF, bank FDs etc). Choose best Large-cap, mid-cap and small-cap funds and invest in all. This will make sure in future if something some bad happen in any sector other can balance that.
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4) Share your plan with your spouse and plan together for retirement
If you are a working couple or a single earner, you should know each other’s income. Not only that, plan about you future expenses together. In that case for a working couple the focus will be same and you can invest more money for the same target. If you don’t know each other’s plan and invest individually then you may unknowingly invest in same wrong product. In bad times you both have to suffer the pain. If the goal is same then the planning will be perfect and road for long term wealth creation will be much smoother.
5) Try to utilize 100% of your income tax bracket and keep that saving aside
Try to invest as much as possible to save income tax. After last year’s change in income tax rule one can save more money this year. If you are a working couple your eligible limit will be even more. Instead of buying ULIP or Endowment plans to save income tax simply put your money in PPF account or ELSS mutual funds. This way you can utilize your income tax exemption limit and at the same time invest money for long term wealth creation.
6) Buy a term insurance plan with enough life cover, even for your spouse
This may not be directly linked with long term wealth creation. But this is the first step one should take for financial planning. For working couple both should buy enough term insurance plans. In case of unexpected death your long term wealth creation plan will not impacted much.
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7) Track your investments and Re-balance them periodically
Although I mentioned to forget about the money after investing for long term in point 2, but this doesn’t means that you will not track the performance of your investment. You should not consider that investment for any future expenditure. But a gradual tracking is must. If you found any scheme is not performing as expected then it is better quit before its too late. Invest that amount in a better performing investment product.
Don’t like lectures, then hire a financial planner right now
Still you think this is a herculean task to plan your investments and create a corpus for future? Then don’t waste much time and hire a professional financial planner. Click here to find a Certified financial planner in India. A financial planner can take your entire tension and as per your income provide the perfect investment plan for you. But if you have time to understand the myths of financial planning then better to follow some good personal finance blogs regularly.
I am not a financial planner or adviser by profession. I believe in reading and learning methodology. Do you prepare yourself for long term wealth creation? Do you have any experience or tips to add this list? Do you think it is possible to become Rich in India by proper financial planning? Share your financial planning experience here by writing a simple comment. Thanks for reading….