Recipe Of Wealth Creation

Every individual has a dream of creating wealth and retiring early. However, most often these dreams are left unfulfilled owing to the thought that the recipe for wealth creation is a complicated one. This is far from truth as in reality the secret to wealth generation is nothing but a combination of the right mindset and strategy. Through this article, you will learn five methods to build wealth in a systematic manner.

Start Early
The two most important elements of wealth creation are time and compounding. The earlier you start the more wealth you can create. Let us look at an example that will show you the importance of starting early. Suppose you invest Rs 10,000 every month in a fund that generates 10 per cent annual return. If you continue investing for 30 years, you will be sitting on Rs 2.26 crore at the end of the period. Now let’s change one element. You start investing 10 years later. Everything else being the same, the corpus generated will approximately be Rs 75 lakhs. This shows that starting early helps because it allows compounding interest to work in your favour over long periods of time. 

Importance of Asset Allocation
Since the primary goal of an investor is wealth creation, it is essential to determine the right asset allocation for investing. Asset allocation is a strategy for optimising risk and return in your portfolio by managing the ratio of each asset in your portfolio based on your objectives, risk appetite and investment tenure. It entails spreading an investment portfolio among several asset classes such as equities, debt, gold and cash. Choosing which asset mix to include in your portfolio is a very personal decision. Each investor’s situation is different and so what works for one person may not be appropriate for another.

Earn More to Invest More
Creating wealth requires you to invest more. To make this a reality it is imperative that you earn more so that with every passing year, you can increase your savings at a steady pace. While the go-to technique for saving more is to cut down on expenses, this may not be a sustainable option over the years. So, the ideal approach is to generate another income stream by way of freelancing, consulting, etc.

Continue your SIP
The journey of wealth creation is one which is spread across decades. In this time, what is important is to remain invested even when times seem to be unfavourable for a particular asset class. Most often, investors tend to stop equity mutual fund SIP when the market moves in a consolidation or correction phase. In this mayhem, what is often forgotten is that the recipe for wealth creation is quite simple: a pinch of discipline and dollops of patience. Hence, it is said that it is vital to stay invested than to time the market. 

This is where the power of SIP lies. By investing through SIPs you can invest in a steady manner without having to make any extra effort. By staying invested in a down market, an investor gets the opportunity to accumulate more units and aids in averaging the cost per unit and reducing the overall impact of market volatility on returns. So, don’t stop your SIP if you get bored or worried about market volatility. Having a disciplined approach toward investment is the key to successful wealth creation. 

SWP for Retirement
Retirement is the phase when an investor looks forwards to reap gains of the efforts made over the past few decades. The most efficient way to withdraw from investments made is the systematic withdrawal plan (SWP) route. Here, through SWP one can withdraw a set amount from mutual fund corpus at periodic intervals and this amount gets credited

Conclusion By following the simple steps mentioned above, an individual can create wealth over time. This journey is not as complicated as it is often made out to be. Start investing early, be steady at it and keep investing in equity mutual funds through SIP. This will allow the magic of compounding to work in your favour.

The writer is CEO, Livrich Finmart  •  Email : livrichfinmart@gmail.com  •  Website : www.janakparikh.com